Efficient and Effective Tax, Treasury and Compliance Management Lead to Outperformance in Finance, According to New Findings in 2010 Hackett Finance Book of Numbers

Capabilities in compliance, tax and treasury are essential for companies to be able to establish a solid control environment that supports the protection of company assets; improved financial reporting and cash positions; exposure to currency, commodity and interest-rate risk; and after-tax profits. World-class finance organizations achieve these goals using about two-thirds of the FTEs and at two-thirds of the cost required by the peer group. Beyond efficient and effective processes, today’s finance organizations need the capabilities that allow them to help the company preserve or free up cash so they can deal with risk and volatility and support investments needed for competitive advantage.

Audit Fees Represent a Significant Savings Opportunity for Most Companies

For most companies, a rise in compliance-related costs has played a significant part in ending a decade-long trend of finance cost reduction. World-class finance organizations spend 43% less on compliance than the peer group. Audit fees, which represent approximately 50% of overall compliance costs in most organizations and have risen substantially for both world-class finance organizations and the peer group, are 47% lower for the former. Company size and industry, widely assumed to be key drivers of the audit fee disparity, do not explain away the significant cost gap in audit fees. While world-class finance organizations mitigate the impact of compliance requirements through their choices of how to deliver finance services, there is still opportunity for financial executives to reduce audit fees and compliance costs through a more effective use of internal audit resources; the leveraging of regulatory changes such as AS5 and revised guidance from the SEC on Sarbanes-Oxley Section 404; and entering into informed negotiations with external auditors.

Audit Fees Represent a Significant Savings Opportunity for Most Companies

For most companies, a rise in compliance-related costs has played a significant part in ending a decade-long trend of finance cost reduction. World-class finance organizations spend 43% less on compliance than the peer group. Audit fees, which represent approximately 50% of overall compliance costs in most organizations and have risen substantially for both world-class finance organizations and the peer group, are 47% lower for the former. Company size and industry, widely assumed to be key drivers of the audit fee disparity, do not explain away the significant cost gap in audit fees. While world-class finance organizations mitigate the impact of compliance requirements through their choices of how to deliver finance services, there is still opportunity for financial executives to reduce audit fees and compliance costs through a more effective use of internal audit resources; the leveraging of regulatory changes such as AS5 and revised guidance from the SEC on Sarbanes-Oxley Section 404; and entering into informed negotiations with external auditors.

Leading Companies Achieve 45% Lower Control and Compliance Cost through Reduced Internal Control Complexity

Reducing complexity in business processes substantially reduces costs, and simplifying process management leads to greater performance transparency and control. This complexity reduction argument extends to the processes that support financial reporting. Hackett research shows that by reducing process, systems and control complexity, companies are able to operate with a more effective internal control environment. By doing so, they spend less on Sarbanes-Oxley Section 404 compliance, which has been a cash drain for many companies in recent years. This report describes the practices that leading companies use to better manage process complexity and the relationship between this complexity and the cost of compliance and ongoing performance costs.

The Impact of Revenue Cycle and Overall Finance Processes and Best Practices on Sarbanes-Oxley Compliance

The Hackett Group's finance benchmark has traced a clear rise in finance costs at peer-group companies as a result of Sarbanes-Oxley (SOX) requirements. Meanwhile, world-class firms have continued to shave finance costs while increasing overall finance performance. The Hackett Group has objectively quantified the ability of top performers to achieve SOX compliance more efficiently and effectively. They have fewer but more accurate key controls; they spend less time performing them and they have fewer exceptions to manage; the net result is a lower cost of compliance. In this Hackett Perspective, we discuss why and how SOX has disproportionately impacted typical companies in terms of overall finance processes and specific revenue cycle processes. Further, we examine the impacts of specific best practices as utilized by world-class finance organizations. Finally, we outline tangible steps that companies can take to use SOX as a vehicle for supporting broad-based finance transformation.

Compliance and Risk Management -- Tax Management

Compliance and Risk Management -- Tax Management