Rush for compliance creating burnout in industry.

The Sarbanes-Oxley (SOX) approach to corporate reform has been well documented by now, with much of the attention devoted to the Section 404 requirement to assess internal controls. Both companies and their auditors are responsible for establishing and reviewing systems to make sure they are in compliance.

The financial cost of this requirement is becoming increasingly clear. Estimates range from the $4.36 million reported as an average cost of compliance in a survey of 217 publicly traded companies by Financial Executives International to the $7.8 million reported in a survey of 90 clients by the Big Four accounting firms. The largest companies may spend more in absolute dollars but the impact on smaller companies may be more severe because the cost and burden of compliance is levied against fewer employees and a smaller revenue base.

For large companies and small, there is also a human cost--much harder to pin down in dollars and cents but very real--from the increased workloads stemming from SOX compliance. Combined with existing stress from longer workweeks and reduced benefits, accounting and financial employees from junior auditors to chief financial officers are feeling the pain.

The reality of the human cost is borne out by several recent studies. In one key finding, the AICPA reports nearly one in five accountants at large CPA firms left their jobs in 2004, up from 17 percent in 2003. In a very specific instance, PricewaterhouseCoopers found as many as 1 in 4 junior auditors quit each year. Another study found turnover among chief financial officers at Fortune 500 companies rose by 23 percent in 2004. As seasoned employees leave, other employees must work harder to fill the gap left by their departure. employees feel the resulting pressure. So do their employers.

While the demand for CPAs is increasing dramatically with Sarbanes-Oxley and all the requirements--the supply of talent is decreasing. California is currently ranked 14th in demand for accountants based on growth trends for the next ten years. In the past six months, Ventura County has witnessed a drought of highly qualified accounting professionals. including CPAs and professionals with Big Four experience. Yet, the demand for CPAs has increased over 35 percent in our area.

Mild panic

As a result, my accounting and financial staffing firm is seeing a mild panic in the marketplace as companies are considering their staffing strategies for the future while at the same time trying to attract top talent more effectively without diminishing their high standards or requirements. This demand will not likely slow since Sarbanes-Oxley is here to stay.

In terms specifically of SOX compliance, both the quantity and the quality of the workforce come into play as companies seek to evaluate and improve internal controls. Ajilon Finance sees a triple whammy here because understaffed companies and accounting firms alike were seemingly unprepared to meet SOX requirements.

Burned out from the increased workload and growing job dissatisfaction, employees are leaving. At the same time more financial talent is needed, the new emphasis on internal controls means a higher level of talent is essential. In the San Fernando Valley region, our company's recruiters are seeing an influx of accountant level positions requiting candidates with a CPA. Additionally, a number of top companies in the area are seeking higher-level candidates with very targeted skill sets. This booming demand--coupled with an already low supply of accounting talent in the marketplace--is causing companies to significantly increase their compensation packages and other non-monetary benefits to secure the workers they need. Ajilon Finance sees this trend continuing for some time.

CPAs and financial managers leave accounting firms and companies for many reasons. The burden of SOX compliance is clearly a major factor. Another, facing the entire workforce, is the sheer stress of working ever-longer hours. In one generation, the number of hours spent at work has increased by 8 percent, to an average of 47 hours a week. Fully 20 percent of the American workforce now works more than 49 hours each week.

Key issues

As an advisor to many companies regarding their SOX staffing issues, Ajilon Finance has examined the effects of SOX and identified some key issues where non-accelerated filers can learn from those who worked overtime this year to comply. Most important, staff up now to avoid a last-minute crunch. Have qualified people in place to begin the task as soon as you can.

The experience of accelerated filers shows, depending on the size of your company, it may take anywhere from 10 000 to 80,000 staff hours for SOX implementation and compliance. Adding temporary or direct-hire accountants who are SOX experts can be a big help, forestalling the imposition of an impossible burden on your staff.

Implementing efforts to retain your staff is another way to keep the added workload of SOX compliance from causing burnout and leading to unwanted job turnover. Companies need strong accounting talent to succeed in a post-SOX world. They also need to keep the focus on the core business without being unduly distracted by new compliance requirements. Recognizing these critical needs, and acting on them, can give your company a big step forward.

Janette Marx is the regional vice president for the greater Los Angeles area of Ajilon Finance. Her duties include hiring, training, developing and retaining internal staff as well as driving the sales for the region and strategic planning. Marx is a ten-year veteran of the staffing industry.