follow through on their behalf to ensure that managers are taking compliance and internal control issues seriously. scope. compliance should have an annual work plan that lays out priorities, monitoring processes, and testing. new or changed regulations have to be evaluated and relevant internal policies appropriately modified. this can entail training for both the line and compliance staff. the frequency and extent of compliance reviews and testing should be consistent with the nature and complexity of the institution's compliance risks. areas with higher penalties for non - compliance, that have prior findings of deficiencies or where new products or processes are being introduced should receive more attention. unacceptable exceptions should be reported promptly to appropriate management and, if appropriate, the board of directors. compliance officers should monitor corrective action plans, and retest to ensure deficiencies are corrected in a timely manner. as with any risk management function, the management compliance committee and appropriate committee of the board should at least annually review and approve the compliance risk assessment, the scope of the annual plan, and adherence to the compliance plan. while the plan serves as the prioritization of resources, it should be flexible enough to allow appropriate reallocation of resources as unexpected product introductions or compliance testing results require. at the end of each year, the validity of the initial assumptions should be critically assessed and appropriate reallocations of resources scheduled for the new plan year. compliance audits. the internal audit function should perform independent reviews of the effectiveness of the compliance function. this would include assurance of the quality of information in compliance reports, adequacy of training programs, prompt correction of deficiencies, and implementation of compliance risk management by product managers. the internal auditor can also assess whether sufficient resources are available to meet the changing needs of the organization. internal audit should be independent of the compliance function. auditors lose their independence when they perform management consulting roles for which they later will have to render an opinion. internal audit has both the ability and the responsibility to look across all of the management silos within the corporation and make sure that the system of internal controls has no gaps. further, the control framework must be continually reviewed to keep up with corporate strategic initiatives, reorganizations, and process changes. when an auditor becomes part of management, the independent view is lost. sarbanes - oxley act now let's turn to sarbanes - oxley. at its core, the sarbanes - oxley act is a call to get back to the basics that we have been discussing

the central bank is poorly positioned to respond to further negative demand shocks. because of the zero bound, it is impossible for nominal interest rates to decline further, but it is still possible for inflation to decline to below zero - - that is, for deflation to set in. the combination implies that real interest rates may actually start to rise in the face of negative demand shocks. in this range, the central bank loses much of its ability to respond to these negative demand shocks by lowering real rates of interest. as many have pointed out, the central bank could still respond to negative demand shocks by expanding money growth in various " nontraditional " ways. but these nontraditional approaches are untested. macro - model simulations indicate that if the central bank exercises only traditional policy instruments, the zero - bound problem could significantly increase the severity of recessions. the virulence of the japanese recession also suggests that zerobound problems could be serious. today the standard thinking is that the central bank can and should avoid dealing with these difficulties by guiding the economy toward a low, positive rate of inflation, not a zero rate. the second argument for avoiding mathematical zero involves labor markets. a good deal of evidence suggests that, in the economy at large, employers are reluctant to cut workers'nominal wages or, at least, downward wage rigidities exceed upward rigidities. the normal market process of reallocation of labor in response to industry or sectoral shifts works by having real wages adjust to keep them in line with workers'marginal products of labor. if nominal wages cannot be cut for workers who, for whatever reason, become less productive, labor market flexibility is enhanced by having low positive overall rates of inflation that effectively cut real wages for these workers. to these strategic reasons for avoiding mathematical zero can be added a measurement reason. one of the great difficulties in compiling price indexes is in adjusting them for changes in the quality of goods and services. how does one measure the value of a new good or of a service that benefits from a new technology? casual evidence indicates that failure to make accurate adjustments can create a bias that could be quite large - - indeed, king ( 2002 ) gives some heuristic illustrations that suggest that the true prices of some consumer durables have not risen at all since as far back as 1915! the statistical agencies compiling consumer prices in the united states - - the bureau of labor statistics for the consumer price index ( cpi ) and the department of commerce for the personal consumption expenditure def