Wednesday, May 23, 2007

Compliance stifles outsourcing


Increased regulatory pressures and the fear of sanctions for failure to comply are making FTSE-350 FDs reluctant to relinquish control over sensitive finance and accounting functions.

The burden of handling regulatory and compliance issues has become a major obstacle to outsourcing finance and accounting business functions, according to research among UK finance directors.

The survey of 50 FDs from UK FTSE-350 companies by LogicaCMG has found that FDs believe that increased regulation and a greater emphasis on corporate governance are the biggest barrier to outsourcing. Only 7% currently outsource any finance and accounting functions, with 68% stating that the burden of current financial regimes is holding them back.

According to the survey, more than 50% of the CFOs questioned had outsourced at least one area of their business, and a further 19% planned to use outsourcing in the near future as a means of reducing costs. But the same CFOs say that they are less likely to outsource their own finance and accounting function than they are to outsource other business areas, citing regulation and compliance as the restricting factor.

Losing control

David Vine, MD at Global Expense, agrees that the main reason FDs are reticent to outsource certain finance functions is because they are concerned about losing control. “Often ‘one-stop-shop’ outsourced service providers aren’t the best bet as control is passed to the provider.”

Mark Holland, managing partner at Baker Tilly, says “FDs are much more aware that while they might be able to outsource the work, the responsibility for how well it is done and its compliance with UK and other regulations stays with themselves. As a result, FDs are reluctant to outsource some of the more sensit ive areas of their work.”

Mutually exclusive

Paul Cartwright at Accenture agrees that “regulation is a big thing and that there is not much finance and accounting outsourcing”. But he adds that he is “not convinced that the causal relationship is that strong. I certainly do not believe that if all regulatory change stopped that there would be a flood of outsourcing. Indeed, the reverse hypothesis is more plausible.”

One consequence of increased compliance is a greater emphasis on the content and form of service level agreements, says Gordon Stuart, FD at Xansa. “Five years ago people would just routinely sign these and they were fairly boilerplate contracts. Now, both sides go through them much more thoroughly,” he says.

Tom Bangemann, vice president of The Hackett Group, says that a greater focus on contract terms has not caused a downturn in the outsourcing market. “There are no major trends or fluctuations in the market. Our research tells us that between 4% and 8% of companies have outsourced their finance function and this will double in the next two years,” he says.

The National Outsourcing Association (NOA) shares the view that the outsourcing market is picking up as FDs regain confidence about the ability of third-party suppliers to carry out work with strict adherence to these new regulations and standards and codes of best practice.