Reports say companies should review spending on compliance

Three recent reports on the state of compliance warn companies to re-evaluate the level of resources they are currently committing to their compliance function.

Three recent reports on the state of compliance contain insights that should move companies to re-evaluate the level of resources they are currently committing to their compliance function.

The most recent report, ‘In Focus: Compliance trends survey 2013’ by Deloitte and Compliance Week, revealed some startling findings about the staffing and funding of compliance departments at many companies:

The median size of survey respondents was $1 billion to $5 billion in annual revenue, and 5,000 to 10,000 employees. Yet 52 percent say their full-time compliance staff consists of five or fewer people, and 47 percent say their annual budget for compliance – including salaries – is less than $1 million. ‘Both of those numbers are very troubling to me,’ said Tom Rollauer of Deloitte and executive director at the Deloitte Center for Regulatory Strategies. ‘The 47 percent with a budget of less than $1 million tells me that those compliance programs may not be very robust.’

The lack of funding for the compliance function was echoed in the PwC State of compliance 2013 report where 25 percent of the US respondents reveal that they spend between $1 million and $5 million annually on compliance programs, another 38 percent reporting spending between $100,000 and $1 million and 28 percent $50,000 or less. The PwC report gave a slightly different view of staffing as 37 percent of companies surveyed said they increased staffing over the last 12 months, 47 percent said there was no change and 7 percent said staffing decreased.

LRN’s 2013 ethics & compliance leadership survey reported that 46 percent of companies polled planned no budget changes from 2012, 38 percent planned on increasing their budgets and 16 percent said would make budget cuts. The survey suggests that an above average number of companies are anticipating making cuts to their compliance budgets, especially considering the amount of new regulation and additional scrutiny companies can expect in the coming year. The survey did note, however, that compliance budget increases were planned by almost half of all companies in highly regulated industries, which is to be expected.

These surveys tell a story about what companies are spending and how they are using human resources to attack their compliance issues, but only each individual company can determine if their approach is working. Each company’s compliance hurdles are different, and there are multiple ways to effectively comply with regulations. Skimping on compliance, however, is never a good idea. Of course overspending is not good either, so it is important to regularly check your compliance measures to determine if they are really cost-effective and efficient. Corporate Secretary encourages you to review these reports for ideas that can help you improve your compliance programs and save on costs as well. 

As an example, one point the LRN survey makes very clear is that it finds no correlation between the amount of money per employee a company spends and how effective its compliance programs are. LRN asserts that program effectiveness is tied to how a company spends its money and why – not simply how much money it spends.

What does this mean? Those companies that are better at communicating compliance measures effectively to their employees will likely spend less on compliance because the employees will more faithfully execute the compliance measures. And that is a compliance measure worth more than any company could ever spend.

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