Study: Centralized Administration Makes Sarbox Easier

Companies with centralized administrative functions have had a significantly easier time in complying with the Sarbanes-Oxley Act, according to a study released Wednesday by Deloitte Consulting.

The study found that Sarbox is easier for companies with "shared-service" organizations for functions such as accounting, payroll, and human resources.

More than 82% of respondents said shared services simplified Sarbox compliance, and 45% said shared-services organizations played the lead role in their compliance effort.

Companies with shared-services organizations are well-positioned to undertake the laborious compliance process for Sarbanes-Oxley's section 404, which requires documenting and testing internal financial-reporting controls. "We're seeing an uptick in the number of companies implementing shared services, and Sarbanes-Oxley is one of the main drivers," says Susan Hogan, principal and leader of Deloitte's shared-services practice.

Last year, Sarbanes-Oxley compliance spending totaled $5.5 billion, according to AMR Research, and is projected to rise to $6.1 billion in 2005 as companies add to or improve on their initial compliance efforts.

Shared-services organizations facilitate Sarbox compliance by concentrating financial processes in fewer locations, Hogan says. One Deloitte client had its accounting functions spread out over 300 locations, she says. "It's hard to keep track of controls when you have 300 locations."

Shared services also makes it easier to justify investments in labor-saving technology such as imaging and workflow software that's needed to test and document controls.

Still, moving to a shared-services environment poses a formidable consolidation challenge for large, diversified companies with multiple enterprise-resource-planning systems. As an alternative to standardizing on a single system, companies are adopting Web-based middleware to bridge these multiple systems, the Deloitte study says.

Deloitte surveyed shared-services executives in 115 companies around the world. About half of the companies had annual revenue of $5 billion or more, and 25% had annual revenue of more than $15 billion. Two-thirds of the shared-services organizations had been in place for at least two years.