The burden of handling regulatory and compliance issues has become a major obstacle to outsourcing finance and accounting business functions, according to research among UK finance directors.

The survey of 50 FDs from UK FTSE-350 companies by LogicaCMG has found that FDs believe that increased regulation and a greater emphasis on corporate governance are the biggest barrier to outsourcing. Only 7% currently outsource any finance and accounting functions, with 68% stating that the burden of current financial regimes is holding them back.

Kevin Radley, the firm’s FD and CFO in the UK, says that the severity of sanctions as a result of a regulatory infringement is an overriding factor in FDs’ desire to retain direct control of their finance function. “CFO time is being tied up with the management of work that could be outsourced. This could leave companies short of resources to manage mission-critical business opportunities.”

According to the survey, more than 50% of the CFOs questioned had outsourced at least one area of their business, and a further 19% planned to use outsourcing in the near future as a means of reducing costs. But the same CFOs say that they are less likely to outsource their own finance and accounting function than they are to outsource other business areas, citing regulation and compliance as the restricting factor.

Losing control
David Vine, MD at Global Expense, agrees that the main reason FDs are reticent to outsource certain finance functions is because they are concerned about losing control. “Often ‘one-stop-shop’ outsourced service providers aren’t the best bet as control is passed to the provider.”

Mark Holland, managing partner at Baker Tilly, says “FDs are much more aware that while they might be able to outsource the work, the responsibility for how well it is done and its compliance with UK and other regulations stays with themselves. As a result, FDs are reluctant to outsource some of the more sensit ive areas of their work.”

James Fisher, director at Cartesis, says, “We are not seeing customers outsourcing the key central function responsible for performance management due to the critical nature of these functions and the need for control over these processes.”

But Fisher adds that the latest spate of regulations has boosted the use of external resources by finance and accounting departments, though perhaps not in outsourcing the whole function. He also says that Sarbanes-Oxley has been a distraction from process improvement as finance departments have struggled to get compliant at almost any cost. “We see many organisations now starting to take stock of the situation and trying to make compliance a sustainable process and even turn it into a value driver,” he says.

Mutually exclusive
Paul Cartwright at Accenture agrees that “regulation is a big thing and that there is not much finance and accounting outsourcing”. But he adds that he is “not convinced that the causal relationship is that strong. I certainly do not believe that if all regulatory change stopped that there would be a flood of outsourcing. Indeed, the reverse hypothesis is more plausible.”

One consequence of increased compliance is a greater emphasis on the content and form of service level agreements, says Gordon Stuart, FD at Xansa. “Five years ago people would just routinely sign these and they were fairly boilerplate contracts. Now, both sides go through them much more thoroughly,” he says.

Tom Bangemann, vice president of The Hackett Group, says that a greater focus on contract terms has not caused a downturn in the outsourcing market. “There are no major trends or fluctuations in the market. Our research tells us that between 4% and 8% of companies have outsourced their finance function and this will double in the next two years,” he says.

The National Outsourcing Association (NOA) shares the view that the outsourcing market is picking up as FDs regain confidence about the ability of third-party suppliers to carry out work with strict adherence to these new regulations and standards and codes of best practice. NOA board member Nigel Roxburgh says, “There is a large supply of high quality professional accountants who are very familiar with the latest global accounting standards. When clients see this they are more comfortable about letting outsourcers handle more sensitive and complex areas of their accounting.”