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Wednesday, May 16, 2007

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Survey: Anti-fraud controls costing less

The Sarbanes-Oxley Act of 2002 awaiting President Bush's signature at the White House in July 2002. (Stephen Jaffe, AFP/Getty Images)

The Sarbanes-Oxley law that was intended to halt corporate financial fraud, has cost companies millions of dollars and lots of hassles. But a new survey reports last year those costs were down 23 percent. Ashley Milne-Tyte reports.

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Photo: The Sarbanes-Oxley Act of 2002 awaiting President Bush's signature at the White House in July 2002. (Stephen Jaffe, AFP/Getty Images)

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    KAI RYSSDAL: In theory anyway, CEO's are supposed to get the maximum return for their shareholders. Of course, it hasn't always worked out that way. Sometimes for honest reasons. Sometimes not. So we have section 404 of the Sarbanes-Oxley law. That's the one that requires companies to establish airtight internal controls to stop possible financial fraud in its tracks.

    Since SarbOx went into effect a couple of years ago, abiding by 404 has cost companies millions of dollars and plenty of hassle. But a survey out today reports last year those costs were down 23 percent. Ashley Milne-Tyte reports.


    ASHLEY MILNE-TYTE: This year's drop in costs is thanks to companies' internal efficiencies. Michael Cangemi is president of Financial Executives International, which published today's survey. He says although overall costs have fallen, one stands out…
    MICHAEL CANGEMI: Unfortunately, the external audit costs have pretty much stayed the same now. They may have reduced their hours and increased their rates but the total dollars expended, it's pretty much flat.
    And he doesn't expect audits to get cheaper in the future. Despite the survey's good news, 78 percent of executives still feel the costs of complying with Section 404 outweigh the benefits. Which isn't surprising, says Matt Kelly of Compliance Week.
    MATT KELLY: It's easy to quantify the costs, but the benefits of Sarbanes-Oxley are a little bit more ethereal, like greater investor confidence in your financial statements, or fewer incidents of restatements, or things like that.
    Right now only large companies have to comply with Section 404. But at the end of this year smaller companies will have to sign on. And they may be in for a shock, says Stephen Bainbridge, author of The Complete Guide to Sarbanes Oxley…
    STEPHEN BAINBRIDGE: A lot of these costs that this survey is looking at don't scale. And what I mean by that is they're pretty much fixed costs regardless of how big the company is.
    He says some smaller companies will face compliance costs that could eat up 10 to 30 percent of their annual profits.

    In New York, I'm Ashley Milne-Tyte for Marketplace.

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