The Sarbanes-Oxley (SOX) approach to corporate reform has been well documented by now, with much of the attention devoted to the Section 404 requirement to assess internal controls. Both companies and their auditors are responsible for establishing and reviewing systems to make sure they are in compliance. The financial cost of this requirement is becoming increasingly clear. Estimates range from the $4.36 million reported as an average cost of compliance in a survey of 217 publicly traded companies by Financial Executives International to the $7.8 million reported in a survey of 90 clients by the Big Four accounting firms. The largest companies may spend more in absolute dollars but the impact on smaller companies may be more severe because the cost and burden of compliance is levied against fewer employees and a smaller revenue base. The demand for CPAs is increasing dramatically with Sarbanes-Oxley and all the requirements – while the supply of talent is decreasing. What we are seeing in the marketplace is a mild panic," says Neil Lebovits, CPA, president and COO of Ajilon Finance. "Companies need to reconsider their staffing strategies for the future. The demand will not likely slow since Sarbanes-Oxley is here to stay.” For large companies and small, there is also a human cost – much harder to pin down in dollars and cents but very real – from the increased workloads stemming from SOX compliance. Combined with existing stress from longer workweeks and reduced benefits, financial services employees from junior auditors to chief financial officers are feeling the pain.
The reality of the human cost is borne out by several recent studies. In one key finding, the AICPA reports that nearly one in five accountants at large CPA firms left their jobs in 2004, up from 17 percent in 2003. In a very specific instance, PricewaterhouseCoopers found that as many as 1 in 4 junior auditors quit each year. Another study found that turnover among chief financial officers at Fortune 500 companies rose by 23 percent in 2004. As seasoned employees leave, other employees must work harder to fill the gap left by their departure. Employees feel the resulting pressure. So do their employers. In terms specifically of SOX compliance, both the quantity and the quality of the workforce come into play as companies seek to evaluate and improve internal controls. We see a triple whammy here because:
The need is most acute in publicly traded companies but the impact is also apparent at private companies as they adopt SOX provisions as “best practice.” CPAs and financial managers leave accounting firms and companies for many reasons. The burden of SOX compliance is clearly a major factor. Another, facing the entire workforce, is the sheer stress of working ever-longer hours. In one generation, the number of hours spent at work has increased by 8 percent, to an average of 47 hours a week. Fully 20 percent of the American workforce now works more than 49 hours each week.
But companies and firms don’t have to let SOX compliance create added stress. Sarbanes-Oxley was enacted in 2002 in an attempt to improve corporate governance and prevent a repeat of corporate disasters such as Enron and WorldCom. Large public companies have already met first-year reporting requirements but smaller (“non-accelerated”) filers are still gearing up to face their mid-2006 deadline. As an advisor to many companies regarding their SOX staffing issues, Ajilon Finance has examined the effects of SOX and identified some key issues where non-accelerated filers can learn from those who worked overtime this year to comply. Most important, staff up now to avoid a last-minute crunch. Have qualified people in place to begin the task as soon as you can. The experience of accelerated filers shows that, depending on the size of your company, it may take anywhere from 10,000 to 80,000 hours for SOX implementation and compliance. Adding temporary or direct-hire accountants who are SOX experts can be a big help, forestalling the imposition of an impossible burden on your staff. Not getting started now may also mean that weaknesses will be found by the auditors and cited in their report. Instead, testing internal controls before an audit firm is engaged will give you an opportunity to correct any weaknesses that may be found. Automating the compliance process as quickly as possible will also make the task easier. Re-engineering the compliance process will increase efficiency over time and reduce demands on staff. Implementing efforts to retain your staff is another way to keep the added workload of SOX compliance from causing burnout and leading to unwanted job turnover. Companies need strong accounting talent to succeed in a post-SOX world. They also need to keep the focus on the core business without being unduly distracted by new compliance requirements. Recognizing these critical needs, and acting on them, can give your company a big step forward. Interested in learning more about SOX and how to solve your staffing challenges? Contact Ajilon Finance today at 1.866 GO AJILON or at ajilonfinance.com and one of our staffing professionals will be able to provide you with more sound advice to help you and your company move up in the world!
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Understaffed
companies and accounting firms alike were seemingly unprepared
to meet SOX requirements.
turnover.
