IBy Baselinemag | Posted 2006-02-07 Print
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..T. Designed for Growth.">
Early on, White also focused on BearingPoint's telecom requirements. His end users were largely always-on-the-go consultants who were working out of a loose confederation of offices around the globe. Looking to keep information-technology infrastructure costs in line and provide mobile users with Internet-enabled business applications such as integrated voice, e-mail, network, security and video on a single platform, BearingPoint went to Equant, the Paris-headquartered international data network services provider, for a Multiprotocol Label Switching (MPLS) network, which is highly reliable and able to handle everything from voice to video.
"We wanted an MPLS-based network, so as we picked up new entities and moved them from whatever LLP's [limited liability partnership] infrastructure they were on over to ours, we could drop them into the network," White says. "In almost every case, that happened in the first year of the acquisition."
At the same time, White also began evaluating Internet phone service, eventually adding that capability to the remote interoffice connectivity platform. Equant provided an MPLS virtual private network, which replaced legacy PBXs and monitored the company's infrastructure. It enabled BearingPoint to consolidate voice and data networks, and use satellite technology to link remote locations to the rest of the organization, while offering the same suite of communications services.
Additionally, in an effort to reduce office space and bolster employee productivity, BearingPoint adapted remote worker software from Richmond, Va.-based AgilQuest. Co-located with Cisco CallManagers, the software-based call-processing component of the Cisco Internet Protocol telephony solution that is managed by Equant, AgilQuest applications and servers support BearingPoint's global workforce, enabling the company to eliminate some 4,000 workstations since employees could work virtually. The company manages its entire computer and telecom systems environment with fewer than 100 internal technical support staff, a 1:170 staff support ratio.
After initial test run deployments in Brazil, New Zealand and Australia, the new remote office worker system was implemented at the company's 1,600-seat U.S. headquarters over the July 4th weekend in 2004, and completed during the first half of 2005.
Once the network was in place, BearingPoint began rolling out new applications including the OneTeam human-resources software package from PeopleSoft and Siebel's sales-force system, Wilde says. BearingPoint has, he adds, "a global platform now and an I.T. model that I'd put up against any global I.T. model out there in the marketplace today in the way [they] manage it and deploy systems."
As BearingPoint was shoring up its I.T. infrastructure, it was also coming up against two hard deadlines. In North America, BearingPoint continued to rely on some of KPMG's information-technology resources, especially its financial system, PEAT. Contractually, however, the consultancy had to be completely off the KPMG system effective Feb. 8, 2005, at which point it had agreed to buy some of the computer equipment and other capital assets it had been using from KPMG for between $20 million and $30 million.
The second deadline looming on the horizon was Sarbanes-Oxley. Think iceberg. Think Titanic.
As a publicly traded company, BearingPoint had 90 days from the end of its 2004 fiscal year to comply with Section 404 of Sarbanes-Oxley. This required management to confirm the effectiveness of its I.T. and financial controls in an internal control report as part of its annual 10K filing with the SEC. Since BearingPoint's fiscal year ended on Dec. 31, its 10K and 404 reports were due March 31, 2005, not quite two months after it was scheduled to migrate entirely off the KPMG system.
It also meant that BearingPoint had to have financial numbers from all of the 40 or so different business consulting units, and those numbers had to tally correctly. Problem was that almost everyone in the company had come out of a relatively loose partnership environment, which meant they had never adhered to the same rigid accounting standards applied to publicly held companies, especially in a post-SarbOx world.
"Private partnerships are less like public companies in that they use client-specific accounting systems that don't need to be that robust," says Joseph Vafi, an analyst with Jefferies & Co., an investment bank and institutional securities company. Mark Krueger, finance practice managing director at business process firm Hackett Group, puts it less diplomatically: "Typically when a business owned by partners goes public, the good-old-boy way of doing things has to fall aside."
Unfortunately for BearingPoint, it seems that not all of its old boys abandoned their free-wheeling ways. In Australia, where BearingPoint does substantial business, the Australian equivalent of the SEC, the Australian Securities and Investments Commission (ASIC), has charged that BearingPoint's former director in Australia, Cameron John Morris, gave information to the ASIC that was false or misleading, and that Morris made or authorized a statement in BearingPoint Australia's 2004 annual report that was materially false or misleading.
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In addition, many of the financial systems and software the company was using-the systems into which its finances had to be entered and validated-were designed to deal with the accounting requirements of a privately owned partnership, not a public company. This included the KPMG financial PEAT system in North America that BearingPoint had used since it went public. PEAT was partnership-oriented, Wilde notes, which means it lacked the full complement of compliance controls and software robustness that are essential for Sarbanes-Oxley compliance.
QUESTION: For year three of Sarbanes-Oxley, do you expect to spend more or less time on documenting your internal controls? Tell us at firstname.lastname@example.org.
Compliance: How BearingPoint Lost Its Way
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