David Lewis & Mark Edward, BDO - Local Compliance in Global Business
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David Lewis & Mark Edward, BDO - Local Compliance in Global Business

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Presentation from the 14th Annual North American Shared Services & Outsourcing Week, 2010

Presentation from the 14th Annual North American Shared Services & Outsourcing Week, 2010

To find out more about the 2011 event go to:
www.sharedservicesweek.com

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David Lewis & Mark Edward, BDO - Local Compliance in Global Business David Lewis & Mark Edward, BDO - Local Compliance in Global Business Presentation Transcript

  • LOCAL COMPLIANCE IN GLOBAL BUSINESS DAVID LEWIS and MARK EDWARD Shared Services & Outsourcing Week Orlando FL, 24 March 2010 Copyright © March 10 BDO LLP. All rights reserved.
  • AGENDA Brief introduction to BDO Consequences of non compliance Local compliance in global business
  • BDO INTERNATIONAL 5 1,000+ 46,000 115 $5.026bn BDO International More than 1,000 offices Over 46,000 partners Present in 115 countries Total combined fee income of is the world’s and staff world wide US$5.026bn (as at 30.9.09) fifth largest Accountancy 57% accountancy network Tax advice 21% Other 22% Flexible characteristics of local firms, supported by world-wide network and strength of a global player. THE LEADING ALTERNATIVE TO ‘BIG-4’ LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 3
  • CLIENTS FROM ACROSS THE GLOBE Stat accounts & tax – all EMEA Audit, tax compliance and Global countries Global company secretarial for 11 Software Software Includes FAS 109 / Fin48 quarterly countries in EMEA Company Company reporting Central audit at SSC in Dublin BDO local teams work direct with SSCs Global Stat accounts & tax – 20 European Global Aviation countries plus North America Telecom CoSec and local signatories in 95 Technology Services Currently in transition countries Provider Full scope in 21 LatAm countries Full scope (including payroll, back Global office, Stat accounts & tax – 65 countries Hotel CoSec, bank signatory etc.) Global worldwide Group Telecom 25 EMEA countries Services Includes stat audits where Provider permitted BDO local teams work direct with SSC
  • AGENDA Brief introduction to BDO Consequences of non compliance Local compliance in global business
  • THE CONSEQUENCES OF NON-COMPLIANCE Contents • Introduction to the study • What’s the worst case scenario for non-compliance? • How can that scenario arise? • In cases of non-compliance by a local company or branch, can the authorities attach penalties to the parent? • What are the personal liabilities faced by directors? LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 6
  • DIRECT CONSEQUENCES OF NON-COMPLIANCE • Fines and penalties. • Interest on late payments. • Restrictions on business operations. • Closure of business. • Fines for directors. • Imprisonment. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 7
  • INDIRECT CONSEQUENCES OF NON-COMPLIANCE • Management time. • Extra fees to sort out problems. • Opportunity cost – not concentrating on core activities. • Management worry. • Poor track record with local authorities - more likely to get audits in future. • Sarbanes Oxley. • Poor credit rating. • Loss of contracts in the country. • Loss of global contracts. • Any more from the floor? LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 8
  • 67 COUNTRIES INCLUDED IN ANALYSIS MIDDLE EAST / AMERICAS EUROPE ASIA PACIFIC AFRICA Argentina Austria Italy Armenia Australia BVI Belgium Luxembourg Cameroon China Canada Bulgaria Malta Cyprus Hong Kong Chile Croatia Netherlands Egypt India Colombia Czech Republic Norway Ghana Indonesia Dominican Republic Denmark Poland Jordan Japan Jamaica Estonia Portugal Lebanon Malaysia Netherlands Antilles Finland Romania Mauritius Nepal Panama Georgia Serbia Namibia New Zealand Paraguay Germany Slovakia Nigeria Pakistan Peru Greece Switzerland Saudi Arabia Philippines USA Hungary Ukraine South Africa Singapore Venezuela Ireland United Kingdom Tunisia Thailand Turkey Vanuatu LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 9
  • WHAT IS THE WORST CASE SCENARIO FOR NON-COMPLIANCE? A A polite letter 0 B A fine payable by the local company / ultimate parent 24 C Imprisonment of directors 21 D Closure of business 11 A fine payable by director(s) of local company / ultimate E 11 parent LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 10
  • HOW CAN THIS WORST CASE SCENARIO ARISE? Wilful or gross negligence, or fraud Persistent breaches Non- compliance ny or re en t pa ct su co m ire lo nm d C iso to to pr ne ne Im Fi Fi LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 11
  • WHAT ARE THE PERSONAL LIABILITIES OF THE DIRECTORS (LOCAL AND FOREIGN)? LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 12
  • SUMMARY As a final summary for our study, we used a traffic-lighting system to show the risk posed by non-compliance in each geographical region. The risk levels were based on the worst-case scenario, and the ease of that scenario occurring. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 13
  • SUMMARY • In some countries, non-compliance just means a fine (although sometimes large). • In others, it can mean the mandatory closure of the business and/or personal fines or imprisonment of directors. • Often the indirect consequences can be greater in the form of inconvenience and opportunity cost. The good news • No respondents mentioned death to overseas directors! • The worst consequences are usually reserved for fraud rather than error. You can avoid non-compliance! • Centrally outsourced compliance delivered locally by a global firm. • A client portal to provide project management, central control and clear visibility over the status of local filings. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 14
  • AGENDA Brief introduction to BDO Consequences of non compliance Local compliance in global business
  • LOCAL COMPLIANCE IN GLOBAL BUSINESSES • Demographics. • Common factors. 23 global • Drivers, blockers and companies enablers. on a journey Approaches • The models. to local compliance • Issues and solutions. The future • Participants perspectives. • A BDO View. • Discussion. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 16
  • 23 GLOBAL COMPANIES ON A JOURNEY Number of countries Participants roles Annual revenues £bn >20 7 >100 6 10-20 5 50-100 9 5-10 2 1-5 6 25-50 8 <1 3 0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 Global/Regional Head of Finance Global/Regional Head of Tax Global/Regional Head of SSC Heads of accounting or financial reporting Other LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 17
  • DRIVERS FOR CHANGE “ We are under “ You wouldn’t want pressure from low- to be late filing cost competitors in Libya.” in emerging economies.” COST RISK • Pressure from • SarbOx. investors. • History of late filings. • Pressure from • History of competitors. restatements. “ We want finance FINANCE ADDING VALUE SCALABILITY “ The explosion of to be seen as a • Service provider with • Fast growth. opportunities in emerging business partner, SLAs. markets means that we • Need standard model. not a business are under pressure to set • Support the business, • Following clients into blocker.” up new companies and not fight fires. new territories. the requirements are • Front, mid and back often challenging our office. current models.” LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 18
  • LOCAL COMPLIANCE IN GLOBAL BUSINESSES • Demographics. • Common factors. 23 global • Drivers, blockers and companies enablers. on a journey Approaches • The models. to local compliance • Issues and solutions. The future • Participants perspectives. • A BDO View. • Discussion. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 19
  • ISSUES WITH LOCAL COMPLIANCE “ Compliance is a “ Aim to streamline necessary pain of process enough so Lack of SLA’s Implementing ERP the day job.” that the remaining Fragmented Variety of local functions can be responsibility regulation outsourced.” Infrequent processes Small scale operations Patchwork of Not Small scale providers strategic operations Language Payroll Opportunities People Retaining local knowledge “ I worry that I “ I’m left with one don’t know what I good guy in don’t know. Finland – and not Coordination Career We no longer have sure how we’ll progression the in-country cope when he resources to tell leaves.” us when the Winning Cover regulations new contracts change.” LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 20
  • MODELS FOR COMPLIANCE 1. IN-HOUSE, IN-COUNTRY • Finance functions in-house. Global • Each country responsible for own compliance – no visibility at centre. Regional • Companies without SSC’s use this model everywhere. Local • Not viable in smaller countries combined with SSC model. Advantages Disadvantages • Suits organisations with large operations in each • Difficult to maintain in combination with a country e.g. manufacturing. shared service centre. • Local knowledge under control of local entity. • Limited career progression. • Sometimes used in larger countries where • Cover for staff absences. resources available in-house. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 21
  • MODEL 2: LOCAL OUTSOURCING Regional Local “ I have no-one to lean on if the local firm doesn’t perform.” Each country appoints local service provider. Usually small local firm. Advantages Disadvantages • Addresses continuity issue. • No central coordination (or in-house). • Apparent low cost outsourcing. • Multiple points of contact. • No escalation if service poor. • Lower visibility and control. • Time demand on management. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 22
  • MODEL 3: CENTRALISED OUTSOURCING, CENTRAL DELIVERY or Regional Local in-house Central processing – specialists employed at e.g. VAT returns centre Local Direct filings from centre with local authorities Move the people – Automate – develop software for local employ foreign specialists located at SSC processes to run from SSC or processing centre Advantages Advantages • Can be cost effective for larger countries. • Technology provides cost efficiency where Disadvantages scalable. • Less suitable for smaller countries with one or Disadvantages less full-time role. • Rubbish in, rubbish out – lose sense checks by • Must be desirable SSC location. local experts. • Risk of disruption through staff turnover. • No local presence for local authority audits • Change in local regulation. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 23
  • MODEL 4: CENTRAL OUTSOURCING, LOCAL DELIVERY Regional Company or Outsourcer Local THE BDO MODEL Advantages Disadvantages • Local service delivery and local presence. • Few firms offer full service and global cover. • Global visibility for local compliance issues when • Complaints about extra fees from some big-4 needed. service providers. • Central coordination reduces management time. • Defined escalation path. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 24
  • EXAMPLE OF HYBRID MODEL US EMEA Outsourcer Large West European Smaller countries countries East Europe and Nordics COMPLIANCE IN-HOUSE, IN-COUNTRY. CENTRALLY COORDINATED, LOCAL OUTSOURCING FOR REGIONAL SSC FOR TRANSACTIONS. COMPLIANCE AND BACK OFFICE. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 25
  • LOCAL COMPLIANCE IN GLOBAL BUSINESSES • Demographics. • Common factors. 23 global • Drivers, blockers and companies enablers. on a journey Approaches • The models. to local compliance • Issues and solutions. The future • Participants perspectives. • A BDO View. • Discussion. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 26
  • THE FUTURE Finance as world class, low cost business partner The drive for standardisation “ This has the potential to increase the compliance grief.” • Improve quality/reduce cost/reduce risk. • Facilitate rapid growth. “ Key lies with people capability.” Focus on streamlining “ Build and get ready for future growth including • Automation of compliance processes: deskilling – won’t need so many senior employees.” - tax service centres - software. “ There is a debate on high risk countries such as Brazil and Russia, should they be outsourced or • Local hubs. stay in-house.” • Global or regional coordinated “ It will be a mix: fewer staff in payroll and outsourcing. management accounts, more outsourcing of standard processes and outsourcing of statutory accounts preparation.” “ Now we’ve got the safety net out, we need to be right first time, more times.” LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 27
  • THE FUTURE FOR COMPLIANCE A BDO point of view Addressing the problems Possible solutions • Compliance issues not on the strategic roadmap • Develop clear processes for regulatory - perhaps they should be. compliance. Use the same rigour applied to ‘in • The division of responsibility between Finance, scope’ activities for SOX. Tax and Legal means that local compliance is • Use web based tools to track compliance and rarely addressed as a single issue. progress with the processes needed to ensure • As fewer finance staff are located in country, compliance. local regulatory requirements will act as an • Introduce clear service level agreements increasing barrier to change if the issues are not between finance, tax and legal? addressed sooner rather than later. • If you outsource your compliance functions apply • Managed service providers are increasingly the same rigour that you apply to other aspects entering multiple new countries through the of your business: look for suppliers with global award of a single contract. reach, adopt a common framework and reduce your number of suppliers. • Managed service providers should have a compliance roadmap, possibly in alliance with an “ We’re looking to outsource statutory outside provider, which they can build into their accounting. It’s the last mile in the proposals and be ready to execute on contract journey.” closure. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 28
  • WHAT TO LOOK FOR IN AN OUTSOURCED COMPLIANCE SERVICE PROVIDER GLOBAL REACH A global firm with offices in the countries where you operate. CENTRAL A single point of contact and a defined escalation procedure. COORDINATION LOCAL DELIVERY Service from in-country specialists, not from a central processing factory. GLOBAL EXTRANET For communication and visibility over the status of filings. FULL SCOPE As well as statutory accounts and tax compliance, you may require payroll, back office accounting, local directors, company secretarial and cash handling services. You may also want tax advice and simply filing the returns. TRACK RECORD Experience of successful transitions and strong client references. NO CONFLICTS The group auditor of a listed company cannot provide all the above and you may like to keep another firm free of providing services that would prevent them taking over as auditor. LOCAL COMPLIANCE IN GLOBAL BUSINESS Page 29
  • Where to find out more • Contact your local BDO office; or • Contact David Lewis at BDO’s Global Coordination Centre in Reading, UK • Read our study report - Local compliance in global business • Visit www.bdo.uk.com and click on services/business outsourcing DAVID LEWIS David is a director in our Business Outsourcing and Advisory department in Reading UK. He has held various European roles with global businesses including Unisys and Novell Outsourcing Director and also spent 8 years with Ernst & Young. David has presented on local compliance issues at seminars and conferences in Europe and USA and recently completed a BDO +44 118 925 8529 study into how global companies manage local compliance in combination with a shared services model. david.lewis@bdo.co.uk Mark Edward leads the Mid-Atlantic Region’s Outsourced Financial Services Group and Mark Edward BDO’s Baltimore Office. Mark has over 24 years of client service experience with BDO Assurance Partner and previously with Deloitte & Touche in London. He has extensive experience in consulting, including strategy, business processes and operational efficiency; internal control analysis; and all phases of financial audits. Mark has authored and co-authored 301-634-4918 articles for Association Trends and the Journal of Accountancy on Financial Services MEdward@bdo.com Outsourcing issues. He is chair of the BDO Counts! task force, the firm’s national community volunteer initiative.