Consulting » Compliance stifles outsourcing

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
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.

Kevin Radley, the firm’s FD and CFO in the UK, says that the severity of
sanctions as a result of a regulatory infringement is an overriding factor in
FDs’ desire to retain direct control of their finance function. “CFO time is
being tied up with the management of work that could be outsourced. This could
leave companies short of resources to manage mission-critical business

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.”

James Fisher, director at Cartesis, says, “We are not seeing customers
outsourcing the key central function responsible for performance management due
to the critical nature of these functions and the need for control over these

But Fisher adds that the latest spate of regulations has boosted the use of
external resources by finance and accounting departments, though perhaps not in
outsourcing the whole function. He also says that Sarbanes-Oxley has been a
distraction from process improvement as finance departments have struggled to
get compliant at almost any cost. “We see many organisations now starting to
take stock of the situation and trying to make compliance a sustainable process
and even turn it into a value driver,” he says.

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

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. NOA board member Nigel
Roxburgh says, “There is a large supply of high quality professional accountants
who are very familiar with the latest global accounting standards. When clients
see this they are more comfortable about letting outsourcers handle more
sensitive and complex areas of their accounting.”