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Cendant Corp. CIO Larry Kinder isn't the only business executive with corporate honesty on his mind. Last week's Wall Street roller coaster made CEOs and CFOs at even the most squeaky-clean public companies desperate to restore trust in the markets. Kinder knows how IT can help.
At Cendant, the $8.9 billion-a-year travel conglomerate in New York, maintaining business integrity is a top priority, and Kinder says the IT department plays a significant role in helping the company live up to its high standards. "It's a primary focus for all of us to manage finances properly and better," Kinder says. Cendant, born of a 1997 merger between hotel and rental-car franchiser HFS Inc. and direct marketer CUC International Inc., quickly came under fire when impropriety in CUC's accounting practices came to light, and the new company spent a lot of time and money clearing its new name. Last week, Cendant closed the door on the scandal, finalizing a $3.2 billion settlement with shareholders.
Cendant's Kinder and his staff provide apps to guard against accounting inaccuracies.
President Bush, Congress, and the Securities and Exchange Commission have made restoring the good name of the country's capital markets a priority. This has created incentives for the highest-level business executives to work with business-technology professionals to ensure that financial reports and business data are as accurate as possible. Starting Aug. 11, the SEC will require CEOs and CFOs to sign off on all financial reports, and last week Congress passed legislation prescribing stiff prison terms for senior execs who knowingly publish misleading financial statements.
CIOs could be most helpful in these times by making sure their CFOs and CEOs are fully aware of how their financial-reporting systems work and to what degree those systems help ensure data accuracy. Tech execs also can be instrumental in providing CFOs with more ammunition to discuss with analysts and regulators the rigor behind their internal accounting processes, says Morgan Stanley analyst Charles Phillips. "Describing how real-time the data is, the security behind it, and how integrated the systems are across geographies and departments would be of interest to investors," says Phillips, who released a report this month on accounting forensics (http://www.morganstanley.com/mrchuck).
Bar-coding equipment maker Zebra Technologies Corp. doesn't share information about its financial technology as part of its quarterly reports, but CFO Randy Witcherch believes that might not be a bad idea. "It can't hurt; it can only help," he says. Witcherch is confident that Zebra generates accurate reports, in part because the Vernon Hill, Ill., company's IT department worked closely with Witcherch's finance team to deploy Hyperion Solutions Corp.'s Financial Management system, enabling consistent mapping of accounts in one database by pulling data from all of the company's general ledgers and enterprise resource planning systems.
CIOs might even attend stockholder and financial-analyst meetings to provide such information themselves. Accounting experts say it would be helpful, though, if more CIOs had greater familiarity with generally accepted accounting principles.
Twenty-year CPA Todd Boyle, who works with organizations to develop technology standards for financial reporting, goes a step further: CIOs should join CEOs and CFOs in signing off on financial reports, he says. But not everyone agrees. CIOs don't have responsibility for the integrity of the data, Zebra's Witcherch says. "They're responsible for the integrity of the system."
At the least, CIOs should use their expertise to help business executives provide a richer accounting of their earnings and expenses to investors--and do so more quickly, too, says Jakob Holm, a portfolio manager at Bay Isle Financial LLC. Today, many companies take weeks or months after a quarter's close to issue reports; without sophisticated reporting systems, business managers can spend too much time collecting, analyzing, and reconciling departments' results. "If you have good IT systems, you can issue more information when you release earnings," Holm says. Many companies, such as General Electric and IBM, have increased the amount of data they release to the public.
Some CIOs advocate establishing committees comprised of IT executives and finance managers. That way, the IT department can learn what financial managers need from software and provide updates on new software capabilities that might improve data accuracy.
Such committees would make it easier to spread the word, for instance, about recent upgrades from financial-reporting vendors such as Hyperion and Cognos Inc. that let companies develop rolling budgets, giving them better visibility into their spending trends and revenue streams.
Fossil Inc., a Richardson, Texas, watch and fashion-accessory retailer, has been using Cognos Finance applications for about a year to develop an 18-month rolling profit-and-loss forecast. Starting with this year's March quarter, the financial applications have helped the company provide Wall Street with more accurate quarterly earnings forecasts, finance manager Christopher Lee says.
Software vendors are getting an earful from financial managers about features they'd like. Hyperion customers are asking for expanded "executive dashboard" capabilities that trigger alerts when key indicators--such as day's-sales-outstanding, deferred revenue, and operating expenses--are out of line, chief marketing officer Nazhin Zarghanee says. Increases in capital expenses and depreciation at a time of decreasing operating expenses, for example, mean that cash isn't tracking against capital use, a warning that action may be necessary.
Transparency is key in other ways, too, says Tim Bradley, executive VP of operations at financial software maker Adaytum Inc. Customers want tools that will let them bring real-time financial reporting to all operating levels of their companies, he says.
Ultimately, CIOs must remember that they have a responsibility to shareholders every day, Cendant's Kinder says. They must make sure they're spending wisely on tech projects, financial or otherwise, to help companies meet business goals. "If a company doesn't continually do its due diligence to make sure that the money spent is producing expected results," he says, "that's the greatest form of a lack of integrity."
-- with Rick Whiting
Photo of Larry Kinder by Seth Kushner