Compliance: How BearingPoint Lost Its Way

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The consultancy, touted as a Sarbanes-Oxley expert, failed to report earnings for 18 months and may be de-listed from the Big Board. One reason why: missteps implementing a financial software system.

On Jan. 31, 2006, BearingPoint announced that it had filed its 2004 financial statements and 2004 Form 10K with the Securities and Exchange Commission. For the year, the company said it had a net loss of $546 million on revenue of $3.38 billion. The company said it is focusing now on filing its amended 2004 10Q forms and its 2005 10Qs and 10K. It also said its goal is to be Sarbanes-Oxley compliant by the end of 2006. This story was reported and written before BearingPoint's Jan. 31 announcement.

Story Guide
Main Story:
Compliance: How BearingPoint Lost Its Way

  • What Went Wrong?
  • Born Using Someone Else's Infrastructure.
  • I.T. Designed for Growth
  • Danger: Old Boys and SOX
  • Recovering From a Hasty I.T. Rollout.
  • Ironically, Accounting Was a Big Problem.
  • BearingPoint's End Game.

  • Player Roster: BearingPoint
  • BearingPoint's PeopleSoft Roadblock: Training-Resistant Consultants
  • Timeline: KPMG's Long Evolution into BearingPoint
  • Base Technologies: BearingPoint
  • Sage Software: A Friendlier Face Balancing the Books
  • Planner: Calculating Costs of Sarbanes-Oxley, v. 2.0

    Only a short time after Harry You, the former chief financial officer of Oracle Corp., was brought in as the new chief executive officer of BearingPoint last March, he announced that his first priority was to get the company's financial house in order. At the time, the global technology consulting firm and systems integrator hadn't announced its financials in almost a year. You conceded that BearingPoint would miss its May 10, 2005, deadline for filing 10Q quarterly reports with the Securities and Exchange Commission, but assured analysts that the company's financials would be released by the end of the summer.

    The delays, he said in a published report at the time, were in large part due to problems implementing a new internal financial accounting software system that was seen as critical in enabling BearingPoint to be compliant with Sarbanes-Oxley regulations. "Our people weren't quite ready or trained as the new system came on board, and there were some entries that did not get done right," You subsequently explained.

    Not a big deal, right? After all, BearingPoint provides "world class financial solutions" to many of its Fortune 1000 and Global 2000 clients. It also bills itself as a heavyweight in helping clients achieve compliance with Section 404 of the Sarbanes-Oxley Act. Certainly, the company would be able to resolve whatever glitches it was experiencing with its bookkeeping software.

    Fast forward almost a year. At the end of last month, the financial software-a tailored enterprise resource planning system from PeopleSoft, since acquired by Oracle, that BearingPoint calls OneGlobe-is still being worked on. Moreover, BearingPoint's information-technology implementation problems are far more extensive than have previously been reported, involving multiple, disparate financial systems-some old, some new-and compounding the company's difficulties in achieving Sarbanes-Oxley compliance. The fallout from these difficulties has been far-reaching and enormously costly.

    BearingPoint, a publicly traded company listed on the New York Stock Exchange, with some 15,000 employees and operations in 41 countries, has yet to file financials for the last six months of 2004 and all of 2005-and therefore has so far failed to comply with SarbOx 404 regulations. Also, as a result of its delayed earnings reports, the company is on the brink of being de-listed by the NYSE, according to BearingPoint's own financial statements.

    Short-term, delisting would mean BearingPoint would be suspended from having its stock traded on the NYSE. Perhaps more damaging, it likely would be unable to raise future capital in the equity or debt markets. In fact, the company is already being sued by bondholders who assert that BearingPoint is in default because of its failure to file financial reports.

    Meanwhile, CEO You has acknowledged to analysts that the company's accounting problems have driven off employees, which is a major reason BearingPoint's attrition rate in recent months has run as high as 27%, according to company reports. The company has spend significant sums-at least $100 million to date-in a frantic effort to resolve accounting and related systems issues, and is being squeezed by creditors.

    BearingPoint is also the subject of multiple class-action lawsuits relating to stock performance, auditing problems and allegations of fraud. Last fall, the company issued a statement that said the SEC had launched a formal investigation into the company's business dealings.

    Then, in mid-January, the former director of BearingPoint Australia, Cameron John Morris, was charged by the Australian Securities and Investments Commission with falsifying financial books and records, and then giving false or misleading information to the ASIC, which is the Australian equivalent of the SEC. To date, Morris has not responded to the charges.

    What went wrong? How did one of the world's leading technology consultancies-a firm that has traditionally garnered high marks for providing strategic guidance to its corporate and public-sector clients-lose its way? And can BearingPoint fix its systems and financial reporting problems, and find a path to sustained success?

    QUESTION: For year three of Sarbanes-Oxley, do you expect to spend more or less time on documenting your internal controls? Tell us at baseline@ziffdavis.com

    Next page: What Went Wrong?

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    This article was originally published on 2006-02-07
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