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Sarbanes Oxley : Finance : Operations
Outsourcing the F&A Process: More Control Than You Think
By
Rob Sherman
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Rob Sherman
VP of Marketing and Business Development
Vengroff Williams and Associates
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Studies have shown that outsourcing actually can help a company create a higher-performance finance function. And with buyer demand for financing and accounting (F&A) outsourced services predicted to double this year (according to FAO Research, www.faoresearch.com), outsourcing some portion of the F&A function seems inevitable. The big question then becomes, ?How can I outsource and still keep the necessary control to comply??
Loss of control, the very antithesis of SOX and other related mandates, has historically characterized the outsourcing model making it seemingly impossible for companies to both outsource and comply. Add to the mix the growing complexity of regulatory mandates, (e.g., Sarbanes-Oxley [SOX], Basel II, Health Insurance Portability and Accountability Act [HIPAA]), and it appears that now, more than ever, outsourcing and compliance can never work synergistically.
Sifting through the plethora of mixed messages to the truth about outsourcing, the surprising fact is that strict processes and consistent reporting mechanisms inherent in the outsourcing model actually have given many outsourcers a leg up on compliance. In other words, outsourced providers have in many ways been compliant far before mandates were even in place. In addition, with the advancement of technology, companies using outsourcing can have just as much control and visibility into their F&A function as they would if it were in-house.
But don?t take these ?pro-outsourcing? findings as fact, but rather as a premise that you should explore when investigating the outsourcing model. You should demand that your prospective outsourcer evolve its offerings to reflect the changing regulatory implications. This article will discuss how companies can ensure that their F&A outsource providers in the areas of credit, collections, cash processing and other components of the quote to cash process, are compliance competent by evaluating the outsourcer?s approach to people, process and technology.
People: demand domain expertise; get your internal staff aligned
Within the selection process come various opportunities to discuss how to integrate with such a partner and building out of the requirements necessary to meet your compliance needs. Open dialog with the selected partner is essential. Discuss your desired results and compliance expectations. Speak with the selected partner?s current/past clients and make sure you meet the actual team performing work on your portfolio. Typical questions to ask include:
1. What successes have you had in the past?
2. What companies have you worked with during the initial phase of SOX?
3. Can I talk to your past and current clients?
4. How quickly can you show ROI?
5. What specific SOX-related domain expertise does your team have?
Once you have defined your outsourced vendor requirements, you should start to get your internal team aligned. While initially time consuming, this step enables you to confidently outsource the ?heaving lifting? to your vendor of choice. The suggested departmental participation includes:
? Sales: provide the key attributes necessary for customer escalations.
? Credit: provides the business rules around limits, credit hold policies and the selection or use of possible advanced scoring and risk mitigation technologies.
? Cash application: lock box compliance, shortage posting, treatment and SLAs around corporate policies, access to bank reporting/Web sites.
? Collections: wish list of compliance items, technologies, IT interfacing, systems design, customer treatment and escalation paths, business rules, development of SLAs around desired DSO and credit effectiveness, customer invoicing, deductions management, dispute resolution, process controls, access to buyer data/Web sites and reporting requirements.
? Finance: G/L policies, building of SLAs for compliance and timing of financial reporting.
? Accounts Payable: introduction of the partner, set up of A/P for partner billing.
? Shipping: returns management and current policies, carrier data and relationships, access to carrier POD and bill of laden systems.
? IT: customer data transmission, return of output relative to customer data, secure connectivity, partner systems access, data compliance policies, security, mutual introduction of IT infrastructure.
? Human Resources: compliance and redistribution of assets.
Processes: find a provider with established best practices
With your people ? both internal and external ? requirements and expectations in place, the next area you should examine is the outsourced provider?s processes. Also known as best practices, a good rule of thumb is that the longer a business has been around, the more best practices or documented processes they will have in place. Experience is the key to superior best practices. It is the ?secret sauce? of any outsourced provider, and obviously goes hand-in-hand with its people. In addition, best practices ensure a smooth transition should you need to change the team?s internal or external structure. The more domain expertise and number of implementations a company has experienced, the more its current and future customers will benefit.
Remember, your job is to build accountability and realistic expectations. Set expectations up front including specific metrics, and benefits or penalties associated with successes and failures. In addition, be sure your prospective outsourced provider can provide the following:
1. Business intelligence for a multitude of industries and business processes
2. Documented process treatment and polices
3. Industry benchmarking numbers from which you can rate yourself against
4. Dedicated team devoted to your service requirements and customers
5. Perfected business rules and asset accountability
6. Sample SOWs and SLAs based on key performance indicators (KPIs)
7. Documented plan for reducing expenses
8. Disaster recovery plan around technology, data and facilities
9. Security documentation from the provider including SAS 70 or SOX compliance certification from outside auditors
10. An exit strategy to ensure a smooth transition should future restructuring be required
Technology requirements
People and processes are certainly critical when it comes to outsourcing, but without the last piece ? technology ? today?s data-intensive companies will find it nearly impossible to consistently meet SOX compliance. Technology is the critical lynchpin enabling companies to take advantage of the benefits of outsourcing, while still meeting the mandates of SOX. For example, while time and date stamping of activity, effort, process changes and escalation paths showing a clearly defined methodology around financial best practices all can be done manually, most would agree that these are best handled via technology.
In addition, a technology-rich outsourced provider can enable companies to gain control over one of the most cited areas in need of improved controls ? the credit and collections function. Imagine, for example, a company using both in-house and outsourced resources for its collections and credit department. The outsourced provider currently does not use specialized collections software, but rather, spreadsheets to capture daily activities. The outsourced provider leaves a message for a customer apprising them of an outstanding invoice. The customer, unclear of the name and phone number of the contact on the voicemail, calls the company back directly. However, the latest customer?s notes reside with the outsourced provider. As a result, the internal collector is unable to resolve the issue, aggravating the customer and further degrading the company?s days sales outstanding (DSO). In addition, the internal and outsourced collections team members must now merge their notes for that customer, putting accuracy and control ? the key component of SOX compliance ? at risk.
Now imagine that same scenario, but with an outsourced provider that uses specialized collections software. The result would be much different as the internal collector would be fully aware of the latest activity as it would have been documented in the Web-based collections software with full, up-to-the-minute audit trails. As a result, the in-house collections employee would be able to take immediate action to resolve the issue at hand and would not have to worry about merging that customer?s records into one database to ensure SOX compliance.
Bringing it all together: People, processes and technology
When Congress first passed SOX, companies worried that outsourcing would lead to loss of control and therefore compliance violations. Yet studies have shown that outsourcing can actually help a company create a higher-performance finance function. Companies wanting to take advantage of the benefits of outsourcing including cost efficiencies and increased internal focus, no longer have to worry about loss of control and therefore compliance issues. By evaluating your outsourced provider in the three critical areas of people, processes and technology, you can position your company to not only take advantage of the cost savings of outsourcing, but you will also ensure that compliance mandates are met.
Rob Sherman
VP of Marketing and Business Development
Vengroff Williams and Associates
Robert Sherman, vice president marketing and business development of Vengroff, Williams and Associates
As the vice president of marketing and business development for Vengroff, Williams & Associates, a provider of accounts receivables business process outsourcing, Mr. Sherman is well versed in the needs of his Fortune 1000 customers. Interacting with customers on a daily basis, Mr. Sherman helps customers such as Amazon, AmeriCredit, Insight Enterprises, Mattel, Phelps Dodge and Yamaha meet both the strategic and tactical elements critical to the success of their F&A outsourcing initiatives.
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