The Continuing Quest For Sustainable Compliance

Exclusive Business Finance research reveals how much progress companies have made in establishing compliance procedures for the long term.

The push to meet Sarbanes-Oxley Section 404 deadlines is just the first ripple in a sea change taking place in finance departments nationwide. The function is shifting from a view of compliance as a one-time challenge to a mind-set in which reporting requirements are a prominent area of continuous focus. Smart CFOs are now evaluat-ing their company's ability to comply with new financial reporting rules on an ongoing basis.

That's why Business Finance and ACL Services recently surveyed readers on the sustainability of their compliance efforts. The results show that responsibility for ongoing compliance efforts sits squarely on the CFO's desk. Forty-eight percent of respondents said their CFO has lead responsibility for their company's Sarbanes-Oxley compliance efforts, followed by internal audit as a distant second, chosen by 13 percent.

The survey indicates that finance professionals are well-aware of the importance of continuously monitoring internal controls. Twenty-four percent of respondents continuously monitor internal controls in all major business processes, while 31 percent continuously monitor internal controls in some of their major business processes. Twenty-seven percent said they do not presently monitor internal controls but intend to incorporate continuous monitoring in the future.

However, only 10 percent of respondents quantify the data uncovered by this monitoring on a daily basis, and just 12 percent do so on a weekly basis. Twenty-seven percent quantify controls data on a monthly basis, and 40 percent do so only quarterly.

On the technology side of compliance, enterprise resource planning (ERP) applications emerged as respondents' first choice of software systems to support internal controls testing and monitoring efforts (37 percent). Custom solutions were the second most popular type of software (33 percent).

Overall, respondents believe their organization will be able to effectively sustain its compliance program without making big changes to its technology infrastructure. Twenty-seven percent are very confident in their company's ability to comply long-term, and 50 percent are somewhat confident. That explains why most of these companies are spending less than 20 percent of their Sarbanes-Oxley-related budget on technology. Only 3 percent of respondents said that more than 50 percent of their annual compliance spending is allocated for tech investments, while 13 percent said none of it is earmarked for technology. More alarming, 27 percent have no annual budget for Sarbanes-Oxley compliance at this time.

Further evidence that companies believe they're getting their money's worth from their current technologies is respondents' ranking of the following challenges of Section 404 compliance, from most to least problematic: availability of skilled resources, ongoing monitoring of internal controls, testing the effectiveness of internal controls, documenting internal controls and availability of appropriate technology.