Saturday, March 26, 2005

Sarbanes Oxley and a case for Outsourcing

Thought I’d take a minute to comment on Deloitte’s top 10 problems for financial reporting in 2005. See it here Note that the top 2 items are very HR oriented (number 2 because it hits everyone). The first item is the whole problem with stock options, and since I know relatively little about stock option reporting, that’s not the focus of my commentary.

Instead, I wanted to talk about item #2 which is about Sarbanes Oxley. Sox expenditures are sometimes double what companies initially projected. As organizations get better about auditing these processes and certifying them, the costs should go down, but these are costs that must be recurred on an annual basis. Considering the number of systems that impact the financial systems, the costs can become staggering. As an HR organization, those who outsource benefits or payroll seem to have a “leg up” in these costs. That’s because a decent vendor should provide many of the SAS 70 type 2 audits already done. If they have, an organization would be able to take this documentation to their own auditors and be done with it.

Let’s also say that you only host your systems with a vendor (ASP, or application service provider). They should also have some of the technical SAS 70 reports done, although I think you’d still be on your own for the functional processing of your data.

This is one huge area where an outsourcing philosophy has a pretty decent advantage. If your entire HRMS, PR processing, and benefits administration process is outsourced, it could get your organization out of doing as many as 10 SAS 70 reports. At a cost of $50-100K each, this is a major item to add into the ROI whenever you’re making a decision to outsource, or auditing your vendor.

Smaller organizations tend to outsource more readily, and the entire debate regarding Sox and company size may push more comapnies to outsource. (CFO Magazine and an article about Sox and small public companies going private)