KateTutor revision

Trinity Industries

Robert Shulzinsky

Southern New Hampshire University

Introduction

Trinity Industries Inc. is a diversified industrial company which owns several diverse product-based businesses. The industries are segmented into several units with each segment dealing with a specific product. The unique segmentation accounts for its diversity as this allows the company to produce different products thus satisfying the needs of many customers (Pippins, 2015).The paper serves to provide a detail view of the concept of SOX compliance in relation to the industries, the issues that affected its implementation and the factors that eventually made it a success.

Since inception, the company has continued to register rapid growth and expansion that has contributed to the increasing fame. Initially, the company was known as Trinity Steel. However, the pioneers of the company had a great feeling that they needed to expand their operation. To cater for the expanded nature of the company after some years, the name was changed to Trinity Industries with several branches widely distributed. Like other industries, Trinity Industries Inc. is bound to the SOX compliance. The SOX compliance is a guiding Act that was passed by the United States to protect companies, industries, business enterprises and even the general public from accounting errors and fraudulent practices. The U.S government thought that with the alarming cases of frauds, there was a need to come up with such tool. Since the establishment of the Act, all companies in the United States were expected to oblige and subscribe. The Trinity Industries Inc. faced a lot of challenges in their first year of adoption due to some issues specific to the company (Sande, 2015).

In 2002, the Sarbanes-Oxley Act (SOX) was passed by the United States Congress. The purpose of the Act was to provide patent protection to the general public, stakeholders and business enterprises that existed in America. Patent protection is a legal provision that serves to safeguard an inventors or owner of an item or invention from interference by third parties. The chief aim of this initiative was to improve accuracy and minimize accounting errors that were rapidly increasing. The accuracy of corporate disclosures is sensitive to minimizing accounting errors and combating the alarming rate of fraud in the business sector. The SOX Act has detailed rules and guidelines that support its operation. The pioneers argued that the legal protection and restrictions are equally important in meeting the goal of the Act. It is the corporate responsibility of every interested company to ensure that they adhere to published guidelines to enhance effective implementation. As a result, most companies changed their operation laws to suit the SOX Act. Trinity Industries Inc. was equally bound by this Act. Nevertheless, we must appreciate the challenges that the company underwent on their verge to implement this initiative. Most of the challenges and weaknesses were specific to the company (Bryan & Peek, 2016).

The introduction of such an Act comes with certain legal restrictions. In this sense, every person should adhere outlined and published guidelines to meet the needs of the initiative. In the management of records, for instance, the SOX guidelines provide details of how the guidelines should be stored and the way they should be stored. This includes the conditions and length of time of storage. Department responsible for managing and controlling corporate records were expected to learn and conform to these guiding principles. Trinity Industries Inc. should be appreciated for their efforts that they made in the first year of initiation. The management led by the Vice President and the Chief Auditor played a key role in fighting with the internal constraints that tried to derail the process. As a matter of fact, the company ended adopting the strategy (Li, Raman, Sun & Wu, 2015).

In an interview and through formal writing, the Vice President and the Chief executive described the company as a likely candidate for material weakness. Especially during the first year of adopting the SOX strategy. This was due to some underlying specific factor that grossly affected the implementation process by the company. There are certain factors that gauge the compatibility of this legal provision. Before adopting, one must understand that the legal privileges come in handy with attached challenges. In the case of SOX compliance, there were some overall challenges that affected the implementation process. However, these were variant depending on the enterprise administration and operations. This answers the question why some companies smoothly adopted the strategy while others like The Trinity Industries Inc. struggled throughout their first year to achieve the success. Internal factors are the common culprits to this unique specificity. The internal operational factors may contribute to the weakness in the process of implementation. In this regard, the corporation may face several challenges before adjusting and conforming to the binding laws(Bryan & Peek, 2016).

Material weakness for Trinity Industry

The SOX compliance defines the notion of a material weakness. According to the company’s Vice President and the Chief Audit Executive, the company met the definition of material weakness. The company over the years has registered successful track. However, it is worth appreciating that success does not mean that everything is in order. In analyzing the case of Trinity Industries, understanding the concept of material weaknesses is important. Analytically, it was evident that Trinity faced similar challenges compared to other companies. However, there were some internally restricted specifications that affected the adoption of the set guidelines. The specificity of the problem is a factor in addressing the challenge(Tham & Madni, 2017).

A material weakness is one of the challenges that can be associated with the implementation process of the initiative. It entails an instance that there is some defect internal control. Material weakness occurs when the checks or internal control measures put in place predispose the company to material errors that may interfere with the accuracy of financial statements. The case of Trinity Industries Inc., was not robust or significant enough prevent operational irregularities. In most cases, the operational irregularities are mainly attached to financial issues. The material weakness of a company increases the vulnerability of the company to fraudulent issues. The aim of the SOX compliance guidelines ensures that companies set up robust financial security systems that protect it from the impact of frauds and data manipulation (Li, Raman, Sun & Wu, 2015).

Specific weaknesses

Lack of centralized information system

A centralized information system is sensitive for every organization. The management should ensure that a clear and effective information system is established to facilitate its operation. Information storage and exchange is essential in minimizing these errors that were seen in the case of Trinity. A central channel of communication facilitates unity of command. This ensures that the information is delivered to the intended audience in the best mode and channel. Errors in communication usually stem from the various stages of communication. According to an analytical view of the case Trinity, the industries never invested in a unifying communication system. This made mobilization of the workforce, stakeholders and the overall employee difficult. Unlike many other companies that use a decentralized system of communication. Trinity majorly relied on the central and restricted information system (Christensen, 2015).

The organization failed to incorporate an integrated information system. The availability of an integrated system ensures that there is effective communication. The effectiveness of communication depends on timely, relevance and the clarity of information. The centralized information system came out as a major challenge to the company. The SOX compliance guidelines advocate for a robust infrastructure that seeks to protect the system information. The information management system should ensure that its operations confined to the set standards. Companies have sensitive financial details that should be protected. The storage of these documents should be secured from damage which can lead to massive data loss. A fragmented information system increases the vulnerability of companies to most of the security issues (Bryan & Peek, 2016).

Internal control plays a key role in as far material weakness is concerned. Looking at the structure of the company it was evident that the internal control was inefficient. Despite the good performance, the chief auditor of the company and the president accepted that the company had issues. Trinity Industries Inc. faced the challenges due to it big capacity. Lack of efficient financial management for such huge organizations is likely to lead to errors are very costly. Availability of efficient internal control a vital role in meeting the SOX compliance. The workforce should be up to the task to facilitate the achievement of the set rules. The disciplined and responsible workforce is essential meeting the desired goals of the new regulations. Weighing the success factors and failure factors associated with the implementation of these laws is very important. Despite the presence of adequate workforce and resourceful working environment, there were some internal issues that led to inefficient financial management(Li, Raman, Sun & Wu, 2015).

Fragmented operations

Despite the fact that Trinity Company was one of the most successful industries there were some gaps in operations. Fragmented procedures, certification and control, were some of the issues that contributed to most of the operational challenges. It was noticed that the management of Trinity companies was not in the position of identifying these challenges. Before the detection survey, the company normally operated with no alarming of such existing issues. The annual financial reports that were been delivered had a lot of issues that led huge financial losses. Other companies had well-defined operations that this contributed to their quick adjustment to the SOX guidelines. In the first year, Trinity struggled to put most of structures, guidelines, procedures and control system in place to respond the challenge. According to the company’s Vice President, this was the toughest year that the country had faced since inception (Bryan & Peek, 2016).

Major Challenges that led to material weakness in Trinity Industries Inc.

According to the internal and external survey, it was evident that the successful company faced certain challenges that derailed the process of adopting the desired laws. The implementation of SOX laws called for a robust internal control system that ensures that the operational, system and other physical assets are protected. This protection serves to ensure that data and other assets are well handled minimizing the numerous irregularities usually associated with ineffective handling approaches. Some of the major challenges that Trinity Industries faced in the process of implementing the SOX guidelines include;

General lack process

Analytically it was evident that Trinity Company had issues to do with the general process of operation. Nevertheless, we must appreciate the good time and successful seasons that the company reported. Until the SOX guidelines were put in place, the company never recognized some of the major losses that were attributed to financial errors. The challenge of the general process was broad and diverse. Procedures, management and information structures were silently affected. Ineffective detection mechanism led to the continuous financial errors in most of the financial documents. This was the major cause of misstatement. Other companies that invested in efficient general process faced few challenges as they were able to adjust quickly to the compliance regulation. The Trinity management took rather long to settle and re-organize the whole system structures essential in ensuring efficient process (Christensen, 2015).

The success of ever company depends on the ability to manage its operations. Every step is very important in meeting the effectiveness of the overall process. The material weakness of Trinity Company was highly associated with lack of well-defined general process. Ignorance of the management was another promoting factor. With the successful operations, the company never realized that they were losing critical financial information. The company management was not keen on the annual financial reports. The management only called for the annual reports but never went ahead to carry out sufficient scrutiny of the written report. This ignorance led to the loss of crucial financial information that should be secured when such process is in situ (Fernandez & Corchado, 2013).

Ineffective controls for documentation

The SOX compliance guidelines advocates for efficient documentation process. Every company is expected to confine to these documentation guidelines to achieve success in information management. The Trinity Industries Inc. had a weak documentation control system. Most of the financial records were missing, not updates and not clear thus making the evaluation process difficult. Handling financial documents call for extreme caution as far as documentation is concerned. Carrying out effective documentation ensures that the risk of financial errors is avoided as much as possible. The management plays a key role in facilitating the process of effective documentation. A well-established controlled system carries out additional checks to the record affirming their authenticity and accuracy. Companies that have infective control systems are likely to face major challenges in adjusting to the SOX guidelines. The specific challenge derailed the process of adjustment of the Trinity Company in the first year of implementing the SOX guidelines (Fernandez & Corchado, 2013).

Insufficient evident control mechanisms

The SOX guidelines call for evidence-based operations. The need to establish an effective control mechanisms is important in the process. As a company, Trinity has a big role to play as far as evident control mechanisms are concerned. The evidence of these control mechanisms is essential especially for the purpose of verification. The SOX compliance rules carry out routine inspection s for these companies to gauge the compliance. In view of the case scenario of Trinity, the routine inspections revealed that the company never has efficient evidence of control mechanisms. Control mechanisms protect the company financial resources from fraudulence and breach by internal and external users. The information management team should communicate with the general management and advocate for such changes. Lack of communication is one of the factors that derailed establishment of these control mechanisms(Fernandez & Corchado, 2013).

The success of Trinity Industries Inc.

Trinity Industries Inc. administered an impressive progress after the first year on initiation of SOX compliance. The first year was marred by several challenges that derailed the general operation of the company. It was evident that lack of efficient system infrastructure and investment in robust management of financial data led contributed to the observed challenges. The SOX restrictions called a quick adjustment. The disclosure of the financial loses that resulted from previous ignorance about management of the financial resources also the fast adoption of the compliance guidelines. Nevertheless, it was important to appreciate the fact that company responded positively to the clarion call.

The success factors

Trinity adopted several changes that served to improve its general operations and management of its resources. The identified material weaknesses acted as guidelines for making the changes. One of the first approaches that the management used in promoting the change was changing management strategy. Like any other institution, change usually faces resistance by the people who are directly associated with the change or the change implementer themselves. People may resist change especially when they see that there is no need for change. In the case of Trinity Company, the process of change was not smooth. However, the management was able to quickly mobilize the workforce adopt the SOX guidelines(Fernandez & Corchado, 2013).

The management began by the general reshaping of the overall system. After the challenges faced in the first ear, it was evident that there were several changes that needed to be made to improve system operation. Some of the changes were mainly pinned on the administrative issues. The management of carried out reshuffling and recruitment of extra employees that were well equipped with the managerial services to facilitate the implementation process. Planning for changes and establishment of a reliable of effective infrastructure were put in place. The executive members were actively involved in the process of ensuring that the administrative changes were implemented. Bench-marking and external knowledge sourcing enabled the company to push for the changes within one year.

Trinity Industries Inc. thought it was wise to put up security control checks. The establishment of such checks is essential in data protection. Every company should put data protection as a priority to prevent the increased cases of data breaches. Appropriate security control ensures that financial data is always protected. The installation of tamper-proof security features ensures that the data is protected from loss. The information tools were encrypted with authentication and access limited to minimize potential cases of data breach. Automated security checks were installed to promote automatic data checks. According to SOX compliance guidelines, every company should install a security system that ensures that financial data is always protected. Physical security is also essential in ensuring that physical data is equally protected at all times (Fernandez & Corchado, 2013).

The process of data control and compliance was also enhanced. The management directly enforced the compliance laws ensuring that the members of implementation team were devoted towards meeting the compliance guidelines. Encryption and compression techniques were adopted to facilitate huge storage of data. Previously, the company never had an efficient information storage system. This led to the mass loss of customer information, transaction details and numerous transaction details that deserve to be secured. The company adopted internal and external data access. The internal data access regulation provided the administrative access to data access. This ensured that not every employee is capable of accessing the data. The external protection ensured that the data is protected from external data breaches that remain alarming even in the current era. Routine and comprehensive auditing facilitated the success (Gerard & Weber, 2015).

DIAGRAM OF SOX TRINITY FLOW CHART (ABOVE)

Key elements

ID Bus reporting and control procedures

Consolidate control reporting processes

Implement ASC and Oracle financial

Complete and evaluate pilot projects

External audit

Internal audit and test new reporting and control measures

Document control and reporting procedures and gaps

Close reporting and control

SOX compliance committee and evaluation

The PCAOB is a board that functions under the SOX compliance regulators. The main aim is to supervise and evaluate the public audits by the companies. The board played a key role in promoting compliance of Trinity to the set compliance guidelines. Body investigates registered accounting firms playing an oversight on how they are implementing the set operational guidelines. Monitoring Trinity, the body investigated the audits, data management, securities, audit deficiencies and the financial reporting. PCAOB has outlined requirements that the company adhere to. These include auditing standards, quality control and attestation standards. In the success of Trinity, the board played an essential role in evaluating the measures for these standards. This serves to meet the SOX (Hunger, Hoffman & Bamford, 2015).

Conclusion

Trinity Industries Inc. is bound to the SOX compliance. The SOX compliance is a guiding Act that was passed by the United States to protect companies, industries, business enterprises and even the general public from accounting errors and fraudulent practices. The U.S government thought that with the alarming cases of frauds, there was a need to come up with such tool. Planning for changes and establishment of a reliable of effective infrastructure were put in place. The executive members were actively involved in the process of ensuring that the administrative changes were implemented. Nevertheless, the company registered success following the first year of challenges.

References

Bryan, C., & Peek, A. (2016). U.S. Patent Application No. 15/241,794.

Christensen, B. (2015). Keeping Pace with SOX Compliance: COSO, Costs, and the PCAOB. EDPACS, 51(3), 11-12.

Fernandez, J. A., Martín Martín, Q., & Corchado Rodríguez, J. M. (2013). Business intelligence expert system on SOX compliance over the purchase orders creation process.

Gerard, J. A., & Weber, C. M. (2015). Compliance and Corporate Governance: Theoretical analysis of the effectiveness of compliance based on locus of functional responsibility. International Journal of Global Business, 8(1).

Li, C., Raman, K. K., Sun, L., & Wu, D. (2015). The SOX 404 internal control audit: Key regulatory events. Research in Accounting Regulation, 27(2), 160-164.

Pippins, S. K. (2015). U.S. Patent No. 8,938,895. Washington, DC: U.S. Patent and Trademark Office.

Sande, J. W. V. (2015). U.S. Patent No. 9,145,150. Washington, DC: U.S. Patent and Trademark Office.

Tham, K. D., & Madni, A. M. (2017). SOX compliance with OEE, enterprise modeling and temporal-ABC. Intelligent Automation & Soft Computing, 1-9.

Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2015). Concepts in Strategic Management and Business Policy. Pearson.

image3

image4

image5

Complete and evaluate pilot projects

External audit

ID Bus reporting and control procedures

Implement ASC and oracle financial

Implement ASC and oracle financial

Consolidate control reporting processes

External audit

Internal audit and test new reporting and control measure

SOX compliance committee and evaluation

Close reporting and control