In the video below, as in my column, I use Home Solutions as an example of why Sarbanes-Oxley shouldn’t be watered down for small companies. I was focusing on something that is totally un-Sarbox related: The company’s exaggerations in a news release.But there’s actually something not in the video or column about Home Solutions that’s very Sarbanes Oxley-related, especially when it comes to the much-contested section 404. Without 404, as Glass Lewis’ Lynn Turner - former SEC chief accountant of the SEC - points out, the auditors for Home Solutions would never have had to disclose certain material weaknesses, as it does in its 10-K, such as:

The lack of proper segregation of duties for accounting applications, which means a material misstatement of financial statements “would not be prevented or detected.”

No job descriptions or annual employee reviews. Furthermore, the company says it “did not appropriately communicate information related to its code of conduct, employee handbook and fraud policy.”

Management didn’t approve several customer contracts, review the cash receipts log or verify that cash receipts are posted to the correct account.

The company’s largest vendor statement didn’t agree to the general ledger accounts payable balance.

There’s more, but I won’t bore you. If you’re interested, it’s all there in the auditor’s letter and opinion in the 10-K on Edgar.