Putting a Price Tag on Sarbanes-Oxley

Hackett benchmarking study aims to uncover true cost of internal controls over financial reporting and compliance

Hackett benchmarking study aims to uncover true cost of internal controls over financial reporting and compliance

Atlanta, GA  May 6, 2005  Business advisory firm The Hackett Group has launched a new benchmarking study designed to quantify the total cost of internal controls over financial reporting and compliance, and to provide, for the first time, detailed information about the total cost of financial reporting, controls and compliance related to Section 404 of the Sarbanes-Oxley Act of 2002 (Sarbox).

The study will capture information on process-level activities in various areas within finance, human resources (HR), procurement, IT and sales, and quantify cost gaps between participants' internal control initiatives. In addition, the study will catalogue the practices that correlate with lower costs and provide participants with recommendations to help reduce the cost of their internal controls and compliance efforts.

Hackett reports that, to date, more than 20 companies have signed up to participate in the pilot study, which launched in April and will deliver initial results in June. Initial participants include Ameren, Caterpillar, Convergys, Cooper Industries, Corporate Express, Georgia-Pacific, Johns Manville, Kansas City Southern, MedImmune, OGE Energy, Questar, Rockwell Automation, Symbol Technologies, Whirlpool and Williams.

Finance Costs Tick Upwards

According to Hackett's 2005 Book of Numbers research, increased spending on compliance management has partially contributed to the first increase in finance costs, measured as a percent of revenue, since 1992. A typical finance organization has increased compliance management costs by 27 percent over the past 24 months. At the same time, month-end closing cycles have increased for the first time in recent years. It now takes typical companies 5.5 days to close their books, up from 5.2 days in 2003.

"Sarbox compliance costs, although significant, are merely the tip of the iceberg," said Richard T. Roth, chief research officer at The Hackett Group. "Even greater opportunities can be realized from understanding and reducing the overall control complexity. This study seeks to identify not only the true compliance management costs but also the underlying controls cost, at a comprehensive level."

Roth added that Sarbox is changing the ground rules for best practices. "Not too long ago, faxing invoices was considered a best practice," he noted. "Today the Internet enables electronic bill presentment as a proven technique for distributing invoices. Similarly, this study will begin to uncover the fundamental shift that Sarbox had made on our very definition of a best practice, while capturing the correlating techniques that improve controls and compliance activities at the lowest cost."

Additional Articles of Interest

For more information on Sarbanes-Oxley, read Parts 1 and 2 of the recent SDCExec.com series on Contract Management: Five Myths of Contract Management, and Contract Management: Improving Corporate Governance.

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