Adding Internal Control Software to Goodyear Tire & Rubber Company

Adding Internal Control Software to Goodyear Tire & Rubber Company Abstract: Goodyear is currently having internal control problems especially in reconciliation and review of general ledger accounts. Public companies must meet new Sarbanes-Oxley regulations due to the increase of internal control problems. Goodyear should implement internal control software to minimize this problem. There are three criteria that must be assessed before deciding which software to implement. The criterion consists of meeting Sarbanes-Oxley regulations, the cost associated with implementing the software and the extended warranty provided with the software. Each software's website has been examined thoroughly and other professional articles and publications have also been referenced throughout the text. After reviewing the three software based on the criteria, Trintech ReconNET is the most logical and beneficial software to implement at Goodyear. April 18, 2005 1

Table of Contents Section 1: Title Page 1 Section 2: Table of Contents 2 Section 3: Introduction 3 Section 4: Criteria 5 Section 5: Options 6 Diagram 1.1- Compliance with Sarbanes-Oxley Act 7 Diagram 2.1- Operational Risk Management 10 Section 6: Assessment 13 Section 7: Conclusion 16 Section 8: Works Cited 18 Section 9: Appendix 20 2

Introduction According to The Raising Red Flags article, Goodyear has created an image of success throughout the years, but weak internal controls have created some problems in recent years (1). Goodyear s Form 8-K states some of the major problems occurring within the internal controls are account reconciliation and monitoring of general ledger accounts (2). To reconcile, the accountants confirm the balance in the accounts match correctly with the bank statement. Monitoring refers to different employees periodically checking the account balances to ensure the amount is correct. With an increase of internal control problems the Sarbanes-Oxley Act added some new requirements for companies to complete according to the Management Report on Internal Controls article (3). Effective April 15, 2005 Section 404(a), public companies management must report annually on the internal controls within the company, afterward the independent auditors must attest to the accurate financial reporting (3). Along with fixing the internal controls, Goodyear must meet all requirements for the Sarbanes-Oxley Act. Goodyear must develop a plan to change how the internal controls are handled throughout the company. To improve internal controls Goodyear can place a software system in the financial department to assure accurate and precise financial data. Before acquiring a new software system to help weak internal control Goodyear must evaluate the cost, compliance with Sarbanes Oxley regulations and warranty provided within the software system. Three software systems will be assessed to determine the most beneficial and 3

appropriate software for Goodyear's internal control problems. Meeting the Sarbanes-Oxley requirements will be discussed in Sarbanes-Oxley regulations, while cost associated with the software will be included under costs and extended warranty will consist of the availability of continuing customer service and assistance. 4

Criteria Meeting regulations of the Sarbanes Oxley Act is the most important criteria in deciding what software system to select for Goodyear. The software must provide effective and accurate data and provide documentation of the internal controls for auditors to review. Without meeting all of the regulations fines, securities litigation and a general loss of investors confidence will be create at Goodyear. A second criterion to assess is the cost. No standardized or exact cost can be set because the software is uniquely developed for individual company. The cost incurred from purchasing a software system usually consists of the software and implementation of the software including professional training to operate it. Yearly fees may occur from the software systems to assure warranty and continuation of assistance. The cost associated with reconciliation software for Goodyear should not exceed more than one hundred thousand dollars. Extended warranty is the third criteria, but not as important as the criteria previously mentioned. The software should provide warranty to assure guidance through problems and troubleshoots. Warranty is provide to guarantee if a major problem arises professional assistance will be available on location, not just by telephone. Extended warranty provides reassurance that the company believes in the software being implemented into Goodyear s computers and is willing to back-up the software 5

Options Option 1- Trintech ReconNET One software system Goodyear could implement is Trintech ReconNET. According to Trintech s website, Trintech provides assurance that transactions occurring throughout Goodyear s financial department are accurate and efficient (4). The transaction reconciliation process from Trintech will reduce transaction costs, eliminate fraud, minimize risk and maximize Goodyear s cash flow and profitability (4). Trintech ReconNET software directly relates to Goodyear s internal control weaknesses. According to ReconNET s website, this software tightens internal controls, reduces exposure to risk and decrease costs (5). Trintech ReconNET will codify Goodyear s financial data so it automates the workflow within the system. Immediately detects and red flags suspected problems or data for review to reduce exposure to risk. Ninety percent of Goodyear s processes will be automated to reduce the occurrence of human errors (5). Goodyear will be able to check daily reconciliation, research and complete the account balance processes (5). Using ReconNET will fulfill the requirements needed to meet Sarbanes- Oxley Act claimed by Trintech s website (4). Diagram 2.1- Compliance with Sarbanes-Oxley Act shows how ReconNET uses its software to meet the needs of Sarbanes-Oxley Act. Documentation must be recorded concerning financial activities throughout the day. Within this section, employees can validate, monitor and document the effectiveness of established controls to ensure 6

compliance (5). In the Access Control, segregation of duties is applied. Restricting the access of certain financial data and functions will protect important information about Goodyear. Business Controls will allow Goodyear to define highly flexible rules for each transaction. Data & Records Management provides Goodyear with data integrity through a closed system, so reconciliation is insulated through financial data from manual manipulation by spreadsheets (5). Diagram 1.1- Compliance with Sarbanes-Oxley Act According to Murphy USA case study, Murphy USA began using Trintech ReconNET software to fix the internal control problems (6). By adding ReconNET software to the company, Murphy developed tighter controls on cash, increased efficiency of staff to accommodate rapid growth and created more timely reconciliation. Before using the software, Murphy had 18-20 reconcilers, 7

now bank reconciliation processes are completed by 5 reconcilers. The automation of journal entries eliminates human error dramatically which lowers the cost and time for Murphy (6). Linda Zing from Murphy case study states, ReconNET enables automated reporting faster resolution of exceptions and timely end-of-the year reporting (6). 8

Option 2- Accurate Reconciliation The next software Goodyear could implement is Accurate Reconciliation. According to Accurate website, Accurate focuses on an optimal balance between risk and efficiency to add maximum value to a company (7). Accurate provides automated processes of transactions for quicker and more efficient accuracy (7). The article Accurate Software Unveils New Operational Risk, Accurate s objective today is introducing tighter controls while keeping costs down and profits margins healthy (8). Accurate Reconciliation will help reduce internal controls problems within Goodyear. Accurate website explained Accurate Reconciliation software creates a comprehensive transaction control solution to ensure validity and consistency of data across multiple business lines (7). The multiple business lines means every transaction and documentation in the system will be consistent. Using Accurate Reconciliation Goodyear s transaction will be documented and reported to ensure some compliance with the Sarbanes-Oxley requirements (8). The article Accurate Software explains that Accurate Reconciliation can automate the reconciliation of high volumes of transactions from multiple entities (9). Using automation process, Goodyear transactions will be faster and more efficient (9). Tighter internal controls will be established to fix Goodyear s problems. Diagram 2.1- Operational Risk Management shows how Accurate Reconciliation controlled risk and optimized efficiency. On the outside circle is measure. Measuring the operational risk is important to see if there are any 9

losses. Intelligently and accurately must be included in Goodyear s framework to prevent risk from occurring. On the other outside circle is control. Control creates a sense of balance which is crucial in this cycle. With having control, risk can be balanced against efficiency to create maximum control. Connecting the two circles together is innovate. This develops the insight and intelligence to know when, where and how to implement operational controls and to ensure ongoing improvement. Diagram 2.1- Operational Risk Management According to Lloyd s case study, Lloyd Insurance Company started using Accurate Reconciliation to help improve management reporting and reconciliation problems (10). Adding Accurate Reconciliation automates the processes and develops flexibility and speed of processes, reports, and results. Alan Cook, Reconciliation Accountant said With Accurate Reconciliation we have gained immediate, high visibility of our reconciliation data" (10). 10

Option 3- Assurity Reconciliation- GL Recon ICS The last software Goodyear could implement is Assurity Reconciliation. According to Assurity Technologies, Inc. website, Assurity is dedicated to develop internal control solutions including general ledger account reconciliation and function (11). The software generates efficient savings while reducing the risk of control failure. Immediate results in Goodyear s reconciliation and monitoring of general ledger accounts problems could be fixed using this software. The software GL Recon ICS, is designed specifically for general ledger account reconciliation and certification function (11). The article Release of FL Recon ICS claims that the software will automatically send emails reminding to the employees about the general ledger accounts (12). Assurity Technologies, Inc. website explains there are separate modules that enable this software to meet all criteria to allow efficient and accurate reconciliation. The first module is the reconciliation. This module contains to-do lists for the reconcilers and reviews. Notification is provided for the employee when transactions are late or uncompleted. Each reconciliation forms is tailor precisely for Goodyear s transactions. An Intranet-based document repository for safeguarding of electronic reconciliation files and documentations is provided. Once reconciliation is completed for a week, month or year a comprehensive and flexible report is prepared. The next module is quality assurance. Quality assurance module creates segregation of duties by allowing only certain employees to use this module. 11

These employees will test and assess the transactions. One way quality assurance can be measured is by the risk in each transaction. After reconciliation of each account the reviewer will record comments for improvement. The last and most important module is program management. It is consider the control panel to operate the software. To meet Sarbanes-Oxley new requirements, this module records all transaction occurring throughout the software. Risk attribution analysis is provided to assure transactions are not too risky for the company. It contains the tools for monitoring unassigned accounts and monitoring delinquent reconciliation. According to Tesco case study, Tesco is a leading food retailer in Britain. Using Assurity GL Recon ICS software has enable easier reconciliation for the weekly cash reports, detailing banking statements and handling the overall reconciliation process stated by the Tesco case study (12). Tesco needed to speed up the reconciliation process and GL Recon ICS allowed one-stop, integrated reconciliation. In the Tesco case study Mr. Graham Pimlotts states, When it comes to reconciliation, we are in much better shape now (12). The company gained benefits rapidly and has reduced the reconciliation backlog significantly and the number of employees has been cut in half (12). 12

Assessment Option 1- Trintech ReconNET Sarbanes-Oxley Regulations: This software meets all requirements for Sarbanes-Oxley. It guarantees to document and save all transaction activities throughout the software. Segregation of duty is acquired in the software. Cost: Implementing this software will consist of two costs. These include ReconNET software put into Goodyear s computers and databases, and professional training to operate the software. After speaking with sales representative, Tryt Johnson, the software is uniquely designed to fit individual companies so the price can vary. For Goodyear the software would cost approximately $35,000 (13). The professional training costs approximately another $35,000. After the first year there will be annual fee of 18-20% of the $35,000 for customer service and upgrades on the software. Extended Warranty: This software provides extended warranty. With purchasing the software it includes a one-year contract. After the first year, Goodyear may continue with the warranty by paying the $6,300 for customer service and upgrades. Option 2- Accurate Reconciliation Sarbanes-Oxley Regulations: This software provides only minimum coverage of the regulations. Offering documentation of transactions, but no segregation of duty is obtainable throughout the software. Cost: Implementing this software would also consist of three costs. Speaking with Kelly a representative from Accurate Technology, the purchase of 13

the software is $30,000 (14). The costs associated with implementing the software into the computers is $7,000-$10,000. Professional training to operate the software is the last expense. This price depends on the number of employees being trained. On the average 20-30 employees are trained and cost approximately $4,000-$5,000. Extended Warranty: This software provides some warranty. There is a guarantee one-year warranty with any problems concerning the system. After the first year there are two options Goodyear can accept. Goodyear can pay approximately $6,000 for another full year warranty, or if a major problem occurs throughout the software Accurate will charge an hourly wage to fix the problem. Option 3- Assurity Reconciliation- GL Recon ICS Sarbanes-Oxley Regulations: This software was designed to meet all requirements for Sarbanes-Oxley, but does not guarantee to pass the new regulations. All transactions activities are documented and saved throughout the software. Segregation of duty is established within the software. Cost: The cost incurred from implementing this software ranges from $20,000-$40,000. After talking to John, Assurity's representative, the software is uniquely design for the problems within a company (15). The price varies depending on details of the software, how many people are being trained and the length of the warranty. Usually a range of $70,000-$90,000 is the cost for the software. 14

Extended Warranty: Minimum warranty is provided on this software. The first year is completely covered. After the first year, if a major problem occurs Goodyear must face major fees to get the system fixed. 15

Conclusion After reviewing the three software based on the criteria of Sarbanes-Oxley regulations, cost and extended warranty, Trintech ReconNET is the most logical and beneficial software to implement for Goodyear Tire & Rubber Company. Goodyear is hoping to improve the internal controls within the company to create a better image; this software ensures a good reputation. Trintech ReconNET provides the most assurance within the criteria. Meeting Sarbanes-Oxley requirements is essential for a public company to keep good status among customers and investors. Selection of Trintech over Assurity and Accurate because Trintech ReconNET guarantees to fulfill the requirements needed to meet Sarbanes-Oxley Act claimed by Trintech website (4). Accurate provides only minimum coverage of the Sarbanes-Oxley new regulations and Assurity focuses on meeting all regulation of the Sarbanes-Oxley but does not guarantees it. 16

Cost is an important factor. Trintech may seem expensive, but Trintech ReconNET will pay for itself with improved profitability and investors' confidence. There is a standard price for Trintech extended warranty. Goodyear can be ensured at all times if any problem occur, it will be fixed promptly. Assurity has similar prices to Trintech, but the possibility of not passing the Sarbanes-Oxley regulations is at risk. Goodyear can have confident if anything happens to the software, Trintech will assist immediately as long as the warranty is paid yearly. Assurance and Assurity warranty does not seem as certain in their software. The best solution for Goodyear is to purchase and implement Trintech ReconNET software for the internal control problems. Goodyear will rapidly increase the internal control within the company. 17

Works Cited 1. "Raising Red Flags." CFO The Magazie for Senior Financial Exectives. Sept. 2004 Vol. 20 (11):101. 1 March 2005. <http://www.web.lexisnexis.com/universe/document 2. Form 8-K. The Goodyear Tire & Rubber Company. 11 Feb. 2004. 3. "Management Report on Internal Controls." MSNBC Business. 11 Feb. 2004. <http://www.msnbc.msn.com/id4243334.html> 4. "Our Solution." Trintech. 3 March 2005. <http://www.trintech.com.> 5. "Reconciliation Software." Trintech. 1 March 2005. <http://www.trintech.com/oso6222152121106133612.html.> 6. "Murphy USA Case Study." ReconNET. 14 March 2005. <http://trintech.com/main_docs/pro/reconnet_murphy_oil.pdf.> 7. "About Accurate." Accurate. 10 April 2005. <http://www.accuratesoftware.com.> 8. "Accurate Software Unveils New Operational Risk." PR Newswire US. 19 April 2005. 10 April 2005. <www.web.lexisnexis.com/universe/document?_m=.> 9. "Accurate Software." M2 Presswire. 25 Nov. 2005. 12 April 2005. <www.web.lexis-nexis.com/universe/document?_m.> 10. "Lloyd Case Study." Accurate. 10 April 2005. <http://www.accuratesoftware.com/index.cfm?fuseaction=4.1.2&case_study.> 11. "About Assurity Technologies." Assurity. 10 April 2005. 18

<http://www.assuritytech.com/about.htm.> 12. "Release of GL Recon ICS." 9 Oct. 2004. 12 April 2005. <http://www.assuritytech.com/newsdetail.php?no=4.> 13. "Tesco Case Study." Assurity. 12 April 2005. <http://www.assuritytech.com/index.cfm?.> 14. Johnson, Tryt. Telephone interview. 14 March 2005. 15. Kelly. Telephone interview. 13 April 2005. 16. John. Telephone interview. 13 April 2005. 19

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