Keeping accounting close to home

KAREN RICHARDSON, THE WALL ST JOURNAL, MAY 2006
Companies continue to move some manufacturing and customer-service jobs abroad. But paperwork mostly is still done in the U.S., although not always by human beings.
Even companies that outsource their finance functions—processing accounts receivables and payables, payroll and other human-resource tasks—often send that work to units or other businesses they have an interest in rather than entrusting it to a third party in a far-off land, according to an ongoing survey. And most have no intention of using overseas auditors.
The reason for this patch of apparent corporate patriotism: Fear of running afoul of the Sarbanes-Oxley corporate-governance law. Among other strictures, that law requires companies to maintain systems for preventing financial mistakes and fraud. Sarbanes-Oxley’s internal-controls requirement typically means companies need to hire auditors and use special software to examine all records of financial transactions and other accounting entries.
For companies that operate globally in several currencies and under various national accounting standards, maintaining internal controls can be complicated further if the task is outsourced to third parties—either onshore or abroad—that don’t have strong, vested interests in their clients’ compliance standards.
The survey findings by Hackett Group, an Atlanta business-consulting firm, are at odds with earlier predictions of a wholesale exodus of back-office functions to low-cost countries like India and the Philippines. Since 2004, Hackett has surveyed more than 100 large companies, at least 90 of which are publicly traded, on their paperwork and bookkeeping practices.
About 58% of companies reported a majority of their finance processes are centralized in onshore, company-owned facilities—also known as shared-services centers—that increasingly make use of automation software and other technology.
Only 4% of participants said they have moved such work offshore, and only 7% said they were outsourced to third parties. Just 9% of companies are even considering outsourcing back-office functions to third parties in the next few years. Only about 8% of companies in the Hackett survey have fully automated their payment-distribution processes, while 23% plan to automate them in the next three years.
“People want the functions under their own control and are investing in technology that makes outsourcing almost a moot point,” says Penny Weller, a senior business adviser at Hackett.
Dow Chemical Co. set up four shared-services centers in the early 1990s, in São Paulo, Brazil; Singapore; the Rhine area between Germany and France; and at the company’s headquarters in Midland, Mich. These centers handle all of Dow’s finance functions and have allowed the company to cut its sales, general and administrative expenses by 50% since they were set up, says Ron Edmonds, Dow’s global accounting director.
While shifting payroll and accounts offshore would save even more money, Dow would rather find ways to automate more of those functions rather than run into compliance issues, says Mr. Edmonds.
Besides maintaining control of their paperwork standards, executives are becoming concerned about protecting corporate and employee data. Reconnex, a Mountain View, Calif., company that tracks the flow of information over the Internet, says employees’ Social Security numbers often are transmitted freely out of company networks without being encrypted for security.
Most such leaks occur when employee data are typed into online human-resource functions, according to John Peters, chief executive of Reconnex.
“There is a very high sense of concern by companies about proprietary information leaving companies inappropriately,” he says.

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