Multinational Executives Expect Compliance Costs to Increase, PwC Finds

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Less than Half of U.S. and European Multinationals Have a Clear View of the Value Derived from Their Compliance Spending

LONDON, 23 NOV 2004 – More than half of U.S. and European multinational companies (51 percent) will increase compliance spending by an average of 23 percent during the next 12-24 months, according to the PricewaterhouseCoopers’ Management Barometer Survey.

Despite this sizeable increase, 44 percent of senior executives said their company does not have a clear view of its total compliance spending, although another forty-five percent of the respondents said their company does. However, the survey shows most of the companies who have a clear view of spending do not include remediation costs, penalties, fines, lost revenue and lost management time when tracking. These findings suggest that the ability to accurately track costs and measure value, even by companies with a clear view of the costs involved, is incomplete at best.

“Companies are spending significant sums of money – even more than they realise – in order to improve compliance effectiveness and efficiency, but executives are finding that they are not receiving the return on investment they expected,” said Dan DiFilippo, PricewaterhouseCoopers Global Leader for Performance Improvement and U.S. Leader for Governance, Risk and Compliance. “The risks are just too great for companies to operate with ineffective compliance programs.”

According to the survey, 59 percent of executives say their compliance programs are “somewhat inefficient” and that aspects can be streamlined, while an additional five percent say their programs are inefficient and their company spends more than it needs to. Only 32 percent consider their compliance programs “very efficient.”

Forty-nine percent of U.S. and European multinational companies believe their compliance programs need improvements and 52 percent do not clearly understand the value their company receives from compliance spending.

During the next 12-24 months, nearly all respondents (90 percent) plan improvements to their company’s compliance efforts. These will include improving risk management, strengthening programs to reduce compliance costs and streamlining cost efficiency. Overall, all companies responding to the survey expect to increase their compliance spending by an average of 9.9 percent during the next 12-24 months.

The Barometer found that 26 percent of companies have no formal means of measuring the effectiveness of their compliance efforts. Fifty-nine percent rely on regular audits and reviews and only 27 percent utilize key performance indicators (Companies were allowed to have more than one answer).

According to the survey, external requirements and regulations account for 74 percent of total compliance costs. U.S. multinationals spend a higher percentage on external requirements than European multinationals (84 percent to 61 percent). European companies spend a higher percentage (39 percent to 16 percent) on internal compliance – including ethics, code of conduct, risk management rules – than do U.S. companies.

“While it can vary from country to country, overall, European companies spend more internally on standards while U.S. companies spend more to comply with external regulatory requirements, specifically Sarbanes-Oxley,” said Eddy Schuermans, Business Advisory Leader of Governance, Risk and Compliance, PricewaterhouseCoopers in Belgium “Executives in both Europe and the U.S. expect costs will be higher.”

Overall, surveyed executives estimate that they spend on average about 6.16 percent of their administrative and operations budget for compliance – with spending at product companies slightly higher than service companies – 6.44 percent and 5.62 percent, respectively. U.S. companies spend an average of 5.93 percent versus 6.50 percent in Europe.

A comparison of findings from U.S. and European companies shows a few areas with a clear difference:

  • U.S. executives are more positive than European executives on compliance effectiveness. Forty-four percent of U.S. executives cite need for improvements, versus 55 percent in Europe.
  • Sarbanes-Oxley clearly dominates compliance spending in the U.S. Sarbanes-Oxley accounts for 54 percent of U.S. costs versus only 12 percent in Europe.
  • In the U.S., 48 percent of executives say their company lacks understanding of its total compliance spending versus 38 percent in Europe.

PricewaterhouseCoopers’ Management Barometer is a quarterly survey of top executives in a cross-section of large, multinational businesses. It is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.

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