Recovering From a HastyBy 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.I.T. Rollout.">
Another problem with OneGlobe was training. The MIS Training Institute's Hamilton says that in most cases, three days are required to learn the basics, such as how to properly evaluate and test the system of internal controls within PeopleSoft Financials to ensure transaction integrity, how to examine critical transactions and control points, and how to detail the relationship between users and their activities within the system.
While training on OneGlobe was supposedly mandatory and readily available, it's problematic getting a $235-per-hour-and-up consultant to sit still for three days, listening to the intricacies of a financial system. "It's hard to pull revenue generators off line for back-office training," Recalde says, "especially in a company where operations people weren't held in high esteem, and there wasn't much interest in doing the boring stuff-the blocking and tackling."
"We were finding that we hadn't done enough work on the process side in training, education and change management," Wilde adds.
The OneGlobe system went live in April 2004, and immediately a BearingPoint message board began to fill up with complaints that users couldn't track jobs clearly, get bills out, and receive data and reports they were sure were accurate.
In a filing with the SEC, BearingPoint echoed these complaints, reporting a "number of significant deficiencies in our internal control over financial accounting, especially in areas such as revenue recognition, accounts receivable, unbilled revenue, expenditures and accounts payable, payroll and tax equalization, financial statement preparation and review procedures, property and equipment procedures and controls."
"There were data integrity issues," Wilde says, referring to the fact that the numbers in column A didn't always jibe with those in column B.
Fiscally, at least, the company's senior management seemed to be flying blind. This became painfully evident when in October 2004 it filed third-quarter financials and then almost immediately began to revise its financial statement. In early November, it reduced two line items on its balance sheet by $3 million after discovering the numbers didn't add up.
A few days later, the company conceded that it had overstated its accounts receivable by $92.9 million while understating unbilled revenue by the same amount. Although this mistake was a human error, says a BearingPoint spokesman, the system controls should have caught it well before BearingPoint filed its numbers with the SEC.
On Nov. 10, 2004, after the accounting mess had become public, BearingPoint's board of directors abruptly ousted Blazer as chairman and CEO and replaced him on an interim basis with McGeary, a board member and one-time co-CEO of KPMG Consulting. A week later, McGeary sent out an e-mail to the "BearingPoint Team" announcing the retirement of CFO Robert Falcone and the appointments of Jeff Anderson and Tom Wilde, a 21-year veteran of the firm. Wilde had led the company's managed services solution group and served as the global leader of its consumer, industrial and technology business unit. McGeary said he was being asked to "strengthen our financial function."
Anderson took over tasks such as investor relations. Wilde was to lead finance operations, McGeary explained. "[Wilde] will transition out of his managed services role and immediately begin to accelerate our progress with OneGlobe and our other financial systems and processes."
With the move, BearingPoint was taking over the leadership of the OneGlobe implementation internally, although Ernst & Young people would still be involved. It was left, then, to Wilde, whom McGeary soon named the company's chief information officer, and CTO White to provide the operations leadership needed to help navigate BearingPoint out of dangerous waters. E&Y would not comment on its business with BearingPoint.
From the moment Wilde took on his new position, the clock, he says, "was ticking because we were winning new work and were incurring cost against our existing projects. We had to get all that squared away with a lot of the identified weaknesses that were public in our 8Ks and 10Ks up to that point in time."
OneGlobe, of course, had been live but limping for almost seven months. "It was operational, and we were having some challenges on the data side in terms of data integrity and some functionally issues," Wilde explains. He and White established that the problem wasn't entirely with the system. "A lot of people were quick to point the finger at the technology," Wilde says. "The technology had some glitches, but we fixed those. The technology does work and it's accurate."
One glitch was that consultants could only bill 40 hours a week to a single engagement using OneGlobe, even if they worked additional hours. Those invoicing problems have since been addressed.
Wilde and White also discovered that the financial processes BearingPoint had employed in moving over to the system didn't align with the software.
"We spun up a team to go look at some processes in the financial group and how they tied to our 404 remediation strategy," Wilde says. "That's where we had the biggest disconnect. The processes and the technology weren't fully synched up." As a result, both the processes and the software had to be modified.
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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