Bean Counters Sound Off: Community Bank Chief Financial Officers Face Challenges No One Expected Ten Years Ago. Relations with outside Auditors Continue to Be Itchy, and Real Estate Regs Are a Concern

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The scrapes and cuts of the early implementation of the Sarbanes-Oxley Act have begun to heal. But scars will remain. And there s no returning to the way things used to be. Relations with his bank's outside auditing firm "deteriorated dramatically in 2004 and that was because there was limited guidance out there," says J. Kimbrough "Kim" Davis, CFO at Capital City Bank Group, Tallahassee, Fla. "We had this massive task list of testing and controls ahead of us. The accounting firms didn't know what they were supposed to do. We didn't know what we were supposed to do."

The exasperation factor for accelerated tilers, like Davis, was high.

"Things improved in 2005, as more guidance has come out," the CFO says. "But the relationship can't touch where it was in years past, and I think that day's gone forever."

Davis was one of six community bank CFOs who met in a recent face-to-face roundtable during ABA's National Conference for Community Bankers. Even for those banks not directly affected by SOX, the unpopular law has affected their work.

Davis says compliance and administrative costs associated with SOX will come down a little, but the audit is still much more expensive.

"Our audit costs went from a little less than $250,000 to over $800,000 from 2003-2004," says Davis. While the total bill for 2005 was expected to be somewhat lower than for 2004, Davis says it was not likely going to be as low as management would have liked.

And there are other, less obvious, costs. Davis says the bank's internal auditor now concentrates almost exclusively on SOX Section 404 (broadly, internal controls), leaving other chores to be handled by others. Davis believes 404 will require a three-year learning period.

"Now, it's kind of baked in," says Davis. "It's become part of the corporate culture, so, increasingly, everybody knows what we are supposed to do. But though it's baked in, the problem is you've embedded this new cost in the permanent cost structure. We may trim around the edges once we've got it all down, but the tendency of this kind of thing, over time, is to grow."

Things have started settling down for Texas banker Bob Scott. "It got pretty strained there for a while, but we're back on track," says Scott of relations with his outside firm. It cost $335,000 for outside consultants, attorneys, and other accountants to help his company, Summit Bancshares, sort things out.

Other members of the roundtable, not directly affected by SOX, have still seem some changes.

State Bank of Countryside, Ill., is a Sub S community bank, which has a "strong relationship with our auditors," according to CFO John Laherty. Nevertheless, the bank's accounting firm began applying some SOX steps as best practices even though they weren't supposed to apply under similar, but not identical, FDICIA rules.

"They were holding us to what I'll call a higher standard of a public company," says Laherty. "So we had a little bit of a hurdle there, some banter back and forth."

Other members of the roundtable lament a SOX casualty in the accounting firm relationship: the easy availability of advice.

"That was a perk of having an accounting firm with knowledge, which you could draw from," says Bruce Williams, CFO of Hardin County Bank, Tenn. "Now they are quicker to point you to other bankers who have lived through the question you are asking, so that you'll call them, than to answer you directly."

What Keeps CFOs Busy Today

Are you busier because top management wants more analytical work? Or is it regulatory demands? John Laherty It's a mix. We do look at the broader picture and help drive the company strategically because by its very nature financial reporting cuts across the whole company. This puts us in a rare position that gets to see all the dynamics of the bank. Our board sees the importance of risk management and the importance of strategic direction. …