27 July 2004

64% of Companies Have Dedicated Regulatory Compliance Budgets

64% of Companies Have Dedicated Regulatory Compliance Budgets

By: SmartPros Editorial Staff

-- Sixty-four percent of companies currently have budgets dedicated to financial regulatory compliance, with the average budget projected to be $7.2 million in 2005. Among those companies without a current budget, more than half (54 percent) plan to allocate money for compliance initiatives within the next 12 months.

META Group Inc. released its study, 'Organizational Trends in Sarbanes-Oxley and Regulatory Compliance Issues,' which found that companies are dispersing compliance-related spending across a wide range of financial and accounting regulations:

* 56 percent of companies surveyed have allocated resources for compliance with Sarbanes-Oxley (SOX) and the Health Insurance Portability and Accountability Act (HIPAA) regulations

* 48 percent are reserving a portion of compliance spending for USA PATRIOT Act-related initiatives.

* 35 percent have earmarked money for compliance with Financial Modernization Act and 33 percent for Basel II requirements.

* 28 percent have allocated budget for SEC Rule 17a-4, and 27 percent for International Accounting Standards initiatives.

Despite the broad range of funding, the study found one dominant compliance driver: 'SOX has had a significant impact on how regulatory compliance has been viewed and managed,' said Jon Van Decker, vice president with META Group's Enterprise Application Strategies. 'What makes SOX different is the heightened level of security around non-compliance. CIOs as well as other officers of a company can be liable for inaccurate information or insufficient controls, with the possibility of fines or prison sentences.'

Although the severity of non-compliance has elevated SOX management to the highest executive levels within organizations, the study found that most compliance stakeholders are unclear as to where they fit in the compliance plan, relative to their peers. Moreover, those executives presumed to be in charge of compliance may be taking a much more limited role than previously thought.

Less than one-third of study respondents indicated reliance on the CFO as the primary role within compliance. In addition, only 16 percent of companies have tasked the CFO with supervision of the chief compliance officer (CCO) position. Similarly, while many compliance solutions are initially perceived as services solutions, the CIO is often not involved in the final decision-making stages. As a result, only 14 percent of CCOs report into the CIO position."

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