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Compliance Mountains to Climb

Almost half of finance executives predict they'll have to spend more to follow the rules in 2014.

Seen from an altitude of 30,000 feet, the compliance landscape that CFOs face in 2014 consists of two big mountains and a few challenging foothills.

One of the two loftiest peaks, in the view of many finance chiefs, is complying with the requirements of the Affordable Care Act. The other is about data security — complying with business and regulatory standards aimed at keeping data out of the hands of bad actors.

Ranking below those, yet still worrisome, is coping with increased scrutiny by finance and accounting regulators as they look deeply into issues far afield from the usual work of finance managers. Those include the requirement for companies to report the presence of “conflict minerals” in their companies’ supply chains and document that they have thoroughly investigated whether corporate officials are paying bribes abroad.

13Dec_Outlook_p23bAll of that adds up to a swiftly burgeoning package of compliance challenges facing CFOs in the upcoming year. For that reason, finance chiefs are placed in the position of approving bigger compliance budgets, according to CFO’s September survey of senior finance executives.

Nearly half of the respondents said their companies’ compliance budgets will rise in 2014, with 18% expecting hikes of 10% or more and 29% looking at a rise of less than 10%. Forty-five percent forecast flat compliance budgets.

Much of the spending will be triggered by the actions of legislators and regulators, creating new rules and deadlines that demand a response. But changes in companies’ structure and size and their increasing tendency to expand globally are forcing the added compliance spending at least as much as the rule makers are, some finance chiefs say.

Earl Fry, CFO of Informatica, a data-integration software company, expects that the firm’s 2014 compliance budget will be at least double what it was in 2012. To be sure, some of that increase is a response to new worries about data security and stepped-up scrutiny by the Securities and Exchange Commission related to the Foreign Corrupt Practices Act, and by the Public Company Accounting Oversight Board related to the Sarbanes-Oxley Act.

Yet the predicted surge in Informatica’s compliance spending is more in tandem with the firm’s expansion than with increasing red tape, Fry says. Estimating that the $861 million company will pass the $1 billion revenue mark in 2014, he notes that the company’s global footprint, which currently covers 30 countries, increases every year, and that its employee count will rise by 15% to 20%.

Add to that a broadening platform of the firm’s product offerings, particularly featuring cloud integration, and it becomes clear that “growth in the company and the complexity of dealing with a global business and in dealing with data” is the biggest driver of compliance activity, Fry says.

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