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World-class finance teams are cheap, says Hacket Group

Research by respected benchmarking company The Hackett Group paints a grim
picture of the finance departments of ‘average’ companies. Its 2007 Book of
Numbers for finance found that “world-class” organisations operate with less
than half the staff in virtually every key area of finance.

On top of this, the average Global 1,000 company now spends 12% more on its
finance function than it did three years ago, with an increased focus and
spending on compliance-related activities. World-class organisations, on the
other hand, spend less than half that of average companies ­ savings which
amount to $138m each.

“What we see is that typical companies have hit the wall, and find themselves
hamstrung by the highly complex, non-standardised environments they have
created, where processes remain fragmented and technology has not been used to
best advantage,” said Hackett senior business advisor William Marchionni.
Smaller finance departments in world-class organisations also lead to cost
savings in other areas; on average they spend 47% less than the average on
external audit fees.

The group explains how the number of staff dedicated to compliance activities
illustrates how companies have struggled to cope with the pressures associated
with compliance ­ average companies increased the levels of staffing within
internal audit by 20%, compared to just 12% in world-class companies. This
equates to five full-time staff equivalents for every billion dollars of revenue
compared to 2.8 employees in world-class organisations.

The research showed that average companies spend $584,000 per billion dollars
of revenue on external audit facilities, compared to just $307,500. “While a
number of general factors influence overall audit fees, such as industry risk,
firm risk and profitability ­ all of which impact materiality tests ­
world-class organisations have created an environment where external auditors
can rely more on internal audit results, thus reducing the amount of time
required by the review,” the research states.

According to Hackett finance practice leader Bryan Hall, “At world-class
companies, compliance has proven to be much more manageable. With highly
standardised process environments, more automated controls and clearer lines of
responsibility for internal audit, it’s dramatically easier for them to achieve
compliance and for external auditors to verify that compliance.”

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