The cost of compliance May 18, 2007
Posted by Jani Kaskinen in : Market trends , trackback
There’s a lot of interesting news coming out about the Sarbanes-Oxley Act (SOX) lately. Last month, the U.S. Senate defeated an amendment that would have exempted some small and mid-sized businesses from complying with Sarbanes-Oxley Act Section 404 – the section requiring companies to demonstrate accurate internal controls and have the auditors sign off on them. That tells us that SOX is alive and well. However, the pressures to reduce the costs of compliance are still strong.
Because of this, The Security and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) will soon be considering how to relax some of the requirements of Section 404 to ease the cost burden for companies. It’ll be interesting to see what they come up with.
Against this backdrop, Financial Executives International (FEI) just announced the results of its survey that it cost companies less to comply with Section 404 last year than it had in the previous two years.
The reason? Here’s what FEI President and CEO Michael P. Cangemi had to say about it: “While there is still work to be done, we have come a long way, and total compliance costs have dropped about one-third (35 percent) since year one. This drop is largely attributed to increased efficiencies, a positive learning curve, and technical systems and software rollouts.”
Technology has and will continue to play a big factor in helping companies successfully and cost-effectively adhere to Section 404. Using an automated Purchase-to-Pay system, for example, companies can have the visibility, internal controls and accuracy that they need. When it comes to invoice automation, every invoice is captured and tracked from day one, providing transparency and a complete audit trail. That means that companies can see where an invoice is in the system, what has happened to it, and who has touched it. Technology enables companies to enforce internal controls – e.g., an automated purchasing system will only let those with the authority to make certain purchases able to do so. In addition to all these benefits a true automated system – which not only computerizes, but also streamlines processes – provides the efficiencies companies need to keep costs down.
Another interesting, but not surprising finding from FEI’s survey is that it costs centralized companies less to comply last year than decentralized ones. We’ve been seeing and touting the benefits of Shared Service Centers (SSCs) for some time. These centralized hubs for handling financial and other services across an enterprise, have been very beneficial in the Purchase-to-Pay arena. These SSC provide centralized control, consistency and visibility across a large, disperse organization. We’ve seen companies such as manufacturing giant, Ahlstrom International, benefit from significant savings and improved accounts payable processes through an SSC.
SOX looks like it’s here to stay, and it has provided key benefits. In the FEI Survey almost half of the respondents found that their financial reports are more accurate and reliable since they’ve focused on SOX compliance. But the financial costs remain. It’s up to companies to use technology and other tools to reap the gains and diminish the costs.