Compliance costs, spending increasing

Internal Auditor, Feb, 2005 by T. McCollum

COMPANIES WORLDWIDE expect to dig deep to pay for regulatory compliance programs this year, two new surveys report. Fifty-one percent of U.S. and European multinational corporations plan to increase compliance spending during the next one or two years, according to a recent PricewaterhouseCoopers (PwC) Management Barometer Survey. PwC estimates companies will spend 23 percent more on compliance programs during this period.

Despite increased spending, 44 percent of senior executives surveyed said they don't have a clear view of the value their company's compliance program delivers. And most of the executives among this segment aren't factoring remediation costs, penalties, fines, and lost revenues into their cost considerations.

Fifty-nine percent of respondents reported that their compliance programs are only "somewhat" efficient and need to be streamlined, while 32 percent consider their programs to be very efficient. Five percent said their programs are not efficient because their companies pay more for compliance than necessary. Forty-nine percent of respondents believe their compliance programs need improvement, and 90 percent said their companies plan to improve their programs in the next year or two.

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A major reason for increased compliance costs is the ongoing spending needed to comply with the U.S. Sarbanes-Oxley Act of 2002. Despite heavy outlays to meet the initial reporting deadlines in 2004, U.S. companies are expected to spend twice as much--US $5.8 billion--this year to meet Sarbanes-Oxley requirements, according to a new study by AMR Research. The Boston-based research firm reports that 98 percent of companies surveyed said their compliance spending was at, or higher than, the anticipated level in 2004. Thirty-three percent of organizations said their investments are primarily driven by the risk of non-compliance.

Companies will earmark funds primarily for internal labor (42 percent), outsourced services (29 percent), and technology (28 percent), AMR reports. Information technology (IT) costs are expected to increase 43 percent in 2005, making it the fastest-growing area of Sarbanes-Oxley spending. Sarbanes-Oxley-related spending made up 42 percent of overall IT compliance budgets in 2004. Technology priorities include document and records management, information security, business-process management, compliance-management software, and financial application suites.

A summary of the PricewaterhouseCoopers Management Barometer Survey is available at www.pwcglobal.com. More information on the AMR Research Sarbanes-Oxley spending study is available at www.amrresearch.com.