DangerBy 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.: Old Boys and SOX.">
"We were a partnership migrating to a public company at the same time that a whole bunch of Sarbanes requirements were coming on board right in the middle of implementation, so we had a kind of perfect storm," is how Wilde explains the situation.
With its acquisitions in Europe, Asia and Latin and South America, BearingPoint had inherited client-specific bookkeeping systems, meaning that those systems had to meet the accounting requirements of whatever company or government agency it was working with. Obviously, if the client were based, say, in Brazil, its accounting requirements and standards might differ markedly from those in the U.S.
The company spelled out the problem in one of its SEC filings, noting that its acquisitions "brought a variety of disparate accounting systems of varying quality, all of which had to be evaluated and integrated into BearingPoint's system."
With the KPMG deadline coming up in February 2004, BearingPoint had started in late 2002 to look for a replacement for PEAT in North America so it could bring over the accounting on the PEAT system to the replacement system. "We had to deal with projects that had already been set up in the KPMG accounting system," Wilde explains.
In Europe, BearingPoint was migrating its core financial and accounting applications to SAP financial software. In Asia, it chose to go with accounting software from Accpac, a vendor that until December 2003 had been owned by Computer Associates (it is currently a subsidiary of the U.K.-based Sage Group; see Dossier on p. 56). As a replacement for PEAT, the company needed a solid financial system that would enable it to comply with Sarbanes-Oxley. It decided to go with a PeopleSoft financial and accounting system it dubbed OneGlobe.
At the time, PeopleSoft was a BearingPoint strategic partner and the consulting firm was using a number of other PeopleSoft applications, including the 8.0 versions of its OneTeam human-resources and customer relationship management packages. "We did an elevation assessment of the products available on the market and selected PeopleSoft Financials," Wilde says. "OneGlobe was the new project that was going to replace the KPMG financial application that was supporting our business. It was a Web-based, global, multicurrency control-type of system." So SAP and Accpac, in theory at least, would feed into OneGlobe.
PeopleSoft Financials, especially the 8.4 version used by big corporations, is a complex and comprehensive integrated application that's heavily geared toward the service industry, notes the Framingham, Mass.-based MIS Training Institute, which trains corporate clients how to implement systems.
It controls accounts receivable, accounts payable, general ledger, asset management, projects, budgets, expenses and treasury. "It's an ERP system," says Brad Hamilton, senior instructor for the institute. "It takes a considerable amount of time and effort to implement, and can be extremely difficult to implement successfully because there are so many variables."
Hamilton says it typically takes 18 months to implement the software, assuming the company's business processes align with the solution. If that isn't the case, the processes have to be changed or the software has to be customized, thereby creating further delays, he notes. What BearingPoint didn't have, however, was a lot of time, not with deadlines to both migrate fully off KPMG and comply with Section 404 of SarbOx fast approaching. In early 2003, BearingPoint began migrating to OneGlobe, using competitor Ernst & Young to do the implementation. "We subcontracted that activity to an outside contractor, E&Y, as opposed to doing it internally," a BearingPoint spokesman explained.
From the outset, E&Y was under the gun to complete the implementation. "There was a cultural edict to 'just get it done,'" says former KPMG technology director Recalde. "Little credit was given to make sure that everyone knew what 'it' was. Or how 'it" was all going to come together. And no effort was made to figure out how 'it" would operate over the long run. After all, BearingPoint was a hotbed for industry know-it-alls. Unfortunately, good consultants, like good doctors and lawyers, are their own worst customers."
"Timing was absolutely an issue," Wilde adds. "We would have liked to have taken a little more time on this. Plus, we needed something that had stronger controls in place so we could deal with some of the Sarbanes issues. We had to deal with a lot of things quickly, and at the time there wasn't a lot of clarity about how this whole Sarbanes scenario was going to play out: how many controls did you need, where should they be, how was the testing going to go, how many cycles did you need to have in place before the testing was going to be accurate."
"We were in a bit too much of a rush and didn't fully stress-test the thing," CEO You later conceded.
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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