Spending on compliance and corporate governance soars

One man's red tape is another man's gravy

Increased corporate spending for compliance and corporate governance is having a significant impact on IT budgets, says Gartner, and financial compliance management spending will swallow 10–15 per cent of IT budgets in 2006, up from less than 5 per cent in 2004.

In October and November 2005, Gartner sponsored a financial compliance management survey of 326 audit, finance and IT professionals in North America and Western Europe. Preliminary results indicate that compliance initiatives, as defined by the Sarbanes-Oxley Act (SOX) in the US and related regulatory mandates in other geographies, are diverting a large amount of new IT project discretionary resources to support corporate governance efforts.

French Caldwell, research vice president for Gartner, said: "Projects that were not aligned with compliance and corporate governance were delayed or cancelled, and SOX efforts inhibited the purchase of large amounts of software related to building new technologies and deploying new projects."

Although software is not required to pass a SOX audit, Gartner analysts said it can help to significantly reduce the compliance burden. The majority of the initial spending for SOX projects was for professional services focused on consulting, audits, process management and workflow, documentation, and planning.

New software that will be purchased for these projects will provide business process management, corporate performance management, information access and decision support, document and records management, security, IT operations management and storage using established systems.

"Companies should look for solutions to support multiple regulations and multiple business units," said Tom Eid, research vice president for Gartner. "Sustainable compliance, that is, a level of effort that is sufficient but not excessive, will only be achieved by consolidating compliance efforts through a programmatic rather than project oriented approach."

Gartner said through 2007, companies that choose one-off solutions for each regulatory challenge they face will spend 10 times more on IT solutions for compliance than their counterparts that take a sustainable programmatic approach.

The pressure of meeting SOX deadlines may have led many CIOs to implement one-off projects and miss opportunities to secure long-term benefits for their businesses. This will, in some cases, mean more budget will be spent to advance these projects in 2008 and 2009.

"IT organizations need to implement IT controls for compliance management without increasing architectural complexity. This requires that IT organizations work hand-in-glove with financial, legal and business operations to manage operational risk," said Eid. "Expanding compliance and operational risk demands offer an opportunity for IT to build long-lasting value for the firm, or face the threat of becoming a scapegoat for operational and legal deficiency."

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