Risk & Compliance

The High Costs of Sarbox Compliance

Despite a surge of expense for Sarbanes-Oxley tune-ups, many executives don't have a clear view of their companies' total compliance spending, acco...
Stephen TaubNovember 29, 2004

Companies are being hit with a surge in costs stemming from their efforts to comply with the Sarbanes-Oxley Act, two surveys released last week found. But many of the companies aren’t sure what those efforts are achieving.

For example, a survey of almost 270 board directors at U.S. companies released by RHR International and Directorship magazine found that companies shelled out an average of $16 million on Sarbox compliance, up 77 percent from last year.

Meanwhile, executives responding to the latest PricewaterhouseCoopers “Management Barometer” study said they expect their companies to increase their compliance spending by an average of 9.9 percent during the next 12 to 24 months.

Fifty-one percent of the respondents expect that their organizations will lift their overall compliance spending by an average of 23 percent during the next 12 to 24 months, according to PwC, which each quarter interviews more than 700 chief executive officers, CFOs, and managing directors of growing businesses in the U.S. and Europe. Sarbanes-Oxley concerns dominate compliance spending in the United States, with the act accounting for 54 percent of compliance. Only 12 percent of the compliance costs in Europe were related to the act.

At the same time, however, 44 percent of the senior executives who took part in the PwC survey admitted their companies don’t have a clear view of their total compliance spending. To be sure, 45 percent said their companies’ view of compliance spending is a clear one.

Even so, most of the companies who have a clear view of spending do not include remediation costs, penalties, fines, lost revenue and lost management time when tracking, according to the survey.

The upshot: The ability to accurately track costs and measure value, even by companies with a clear view of the costs involved, is incomplete at best, PwC consultants said. “Companies are spending significant sums of money–even more than they realize–in order to improve compliance effectiveness and efficiency. But executives are finding that they are not receiving the return on investment they expected,” said Dan DiFilippo, the U.S. leader for governance, risk and compliance at PricewaterhouseCoopers.

Since many companies are unsure of how much they are shelling out for compliance, it’s not too surprising to learn that 59 percent of executives say their compliance programs are “somewhat inefficient” and that aspects can be streamlined. Thirty-two percent of the respondents, on the other hand, consider their compliance programs “very efficient.”

The cost problem might bear some connection to companies’ inability to gauge the effects of their efforts. Twenty-six percent of the executives said their companies have no formal way to measure the effectiveness of their compliance efforts. Fifty-nine percent rely on regular audits and reviews and only 27 percent use key performance indicators.