Capgemini: Outsourcing SOX Compliance - Ravi Shankar and Tony Kelly
In recent years, Sarbanes-Oxley compliance has become familiar to many corporates. To improve efficiency and reduce the cost of the financial reporting process, they are turning to outsourcing service providers, Capgemini’s Ravi Shankar and Tony Kelly explain to Jim Banks.
When it was introduced in 2002, Sarbanes-Oxley (SOX) forced corporates to rework their financial reporting processes. The responses of many, however, were based on a short-term view that made SOX a recurring project.
Enterprises are now realising that it is an ongoing, long-term process and this has given business process outsourcing (BPO) providers an opportunity to provide SOX compliance support services.
‘When SOX came in after corporate failures like Enron and WorldCom, companies saw it as a one-off project. It often remained an esoteric project run by accountants or the CFO,’ remarks Ravi Shankar, head of assurance services at Capgemini’s BPO division in Bangalore.
Capgemini, for which SOX compliance support is part of its management assurance services, sees many reasons for handing SOX compliance to an external provider that can offer best practice, effective testing, more efficient financial reporting and significant cost savings. As enterprises see SOX compliance as a repeatable process, they understand that it has the profile of a process that fits with BPO.
‘SOX used to be a specialist area, but now it is outsourceable and offshorable,’ says Shankar. ‘In fact, SOX has been outsourced from day one, but usually to one of the big four accountancy firms. Very few companies handle SOX compliance wholly internally.’
‘They key is to achieve a sustainable year-on-year process,’ says Tony Kelly, global director of product marketing for Capgemini’s BPO and outsourcing services. ‘We come at it from a BPO point of view, not an auditor’s perspective, so we look at compliance and process improvement.’
Starting with the documentation process and assessment of risks associated with financial reporting, Capgemini’s services extend to identifying and designing controls to mitigate those risks, through to the operational level, where SOX processes are regularly tested. It does not, however, fulfill the role of auditor.
‘We help companies to produce documentation for process design and testing. We don’t sign off on the figures. Financial control remains with the client company,’ explains Shankar.
Why BPO works for SOX
In his time at the front line of BPO implementation Shankar has seen companies save 30-40% on SOX compliance costs through outsourcing, much of it in the early stages. Savings derive partly, though not exclusively, from offshoring.
Through its Rightshoring strategy, Capgemini blends on-site and offshored work through a global team operating from Bangalore and Guangzhou. There was a time when SOX was handled 100% on-site and treated in a risk-averse manner, but companies are now willing to offshore.
‘Tasks like building documentation and transcribing it into process documents needs on-site interviews, but the results can be processed offshore. Building the test processes can also be done offshore, and as testing steadily becomes more rules-based it can also be done offshore,’ says Shankar.
Cost also falls because of process improvement. Shankar cites the example of one client that required 400 man-weeks for SOX compliance in year one. In year two that fell to 280 man-weeks before stabilising at around 210 man-weeks, with one-third of the work handled offshore.
‘That translates into big dollar savings. We see offshoring as a trend, though SOX compliance can never be fully offshored. What we can offer is centralised programme management for SOX, using sites in India and China. We can embed processes, and make them less costly and more efficient,’ says Shankar.
SOX compliance is just one of Capgemini’s many BPO services, and its experience in finance and accounting gives it a heritage in BPO and a library of best practice. Furthermore, it can use its own flexible framework for SOX process industrialisation, or use any components of its clients’ existing systems.
Service providers like Capgemini are ready to take SOX under the wing of BPO. What matters now is how fast corporates allow this to happen.