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.ronically, Accounting Was a Big Problem.">
Given the urgency, BearingPoint pulled some its top people from client work and assigned them to work with Wilde and White. "This isn't just a Tom and Chas kind of fix-it team that is off in the back room with a bunch of wrenches and plumbing," Wilde notes. "This is all front and center. We went and pulled some of our top people in."
BearingPoint sent out billing SWAT teams to help engagement teams get up to speed in teaching employees how to set up bills and get them out of the systems. Wilde also initiated data integrity checks, and put groups in place to respond to questions and set up procedures to help ensure that processes jibed with the technology. "If you flip a few of the wrong switches when you set up a project, it's going to accrue the wrong way," Wilde explains. "You go to cut your first bill to the client and you're going to have some challenges because it isn't going to 'true up.'"
The real accounting difficulty, however, wasn't in creating processes and systems for billing for new accounts. The real fiscal nightmares came from the older projects that had been entered incorrectly on the old KPMG PEAT system and on the non-U.S. accounting software. "In the past, we had some folks that did some things that were not within the context of the processes or the design we had put in place for the system," Wilde explains. "We had some contracts and engagements that basically got started off on the wrong foot."
For instance, consultancies use a variety of revenue recognition processes. If an employee in the past used a revenue recognition process that differed from that used by BearingPoint, the contract in question had to be redone, employing the BearingPoint approach. "These systems are so tightly wound around the project accounting side that it took a long time to get all that identified, reconciled and fixed," Wilde says.
Far more time than Wilde or likely anyone else in the company anticipated. When the board named You CEO in March, he discovered that BearingPoint had thousands of accounts that needed to be reviewed, reconciled and in many cases entirely redone. On You's orders, BearingPoint established hubs-the fiscal equivalents of emergency medicine triage centers-at its McLean headquarters and its Third Avenue offices in Manhattan.
Throughout much of the summer and fall, a steady stream of auditors, consultants, remaining Ernst & Young people, department heads, I.T. staffers and managing directors were summoned to these locations to help sort out what emerged as a world-class accounting and systems debacle. "The hubs-really meeting rooms where employees involved in a specific project review the contract-were set up from an accounting perspective to review 7,000 projects that are either open or closed in our systems today," Wilde points out.
Generated by different units in different countries at different times and often produced by disparate systems, the contracts were thoroughly audited to see what was recognized as revenue and to make sure that an appropriate revenue recognition model was used. BearingPoint employees had to retrace the hours they'd worked on projects, and review and verify their billing information. Ultimately, once a contract had been given over to PricewaterhouseCoopers, BearingPoint's auditors, and approved, it could then be entered into the system.
The cost of this grueling exercise has been staggering. To date, the company has spent close to $100 million in an effort to fix its financial and accounting processes and systems and comply with 404, according to its SEC filings. As for Wilde, he recently began trying to build more robust processes for Judy Ethell, a new executive vice president of finance that CEO You had brought in.
It's a job Wilde will never get to finish. In December, as the end-of-year deadline approached for filing financials, BearingPoint's CIO unexpectedly submitted his resignation to "pursue other interests." A spokesman says the company is not looking to replace him.
Late in 2005, BearingPoint seemed to be regaining its financial footing. You announced that employees were now fully trained to use OneGlobe effectively and that errors were minimal. However, OneGlobe's future with BearingPoint may be short-lived. At present, a company spokesman says the firm is working on a plan for integrated financial data, meaning financials in the SAP system in Europe, Accpac in Asia and OneGlobe would all be consolidated. Word inside the company suggests that BearingPoint is looking at SAP for all of its accounting needs. A BearingPoint spokesman said the company was working on its "road map."
You has also strengthened the management team. To shore up its investor-relations and corporate finance departments, BearingPoint hired several senior investor-relations people and a veteran corporate controller, Thomas McHugh. The most visible new recruit, though, is Joni Kahn, who just signed on as executive vice president of technology, reporting directly to You.
Formerly a group vice president at business intelligence solutions provider Business Objects, Kahn-who will sell technology solutions to clients rather than try to implement them-is a well-known figure on the West Coast high-tech scene and a BearingPoint alumnus, having previously built up its high-tech consulting practice into a $400 million business in the space of several years.
"Harry [You] was a big part of my decision to come back," Kahn says. "I met him when he was at Morgan Stanley and at Oracle. He believes, as I do, that there's a huge opportunity at BearingPoint to leverage our proprietary solutions across all industry sectors."
Currently, Kahn is putting together a team of BearingPoint people and likely some outsiders, taking an inventory of the consultancy's industry offerings, and developing a marketing strategy and go-to-market delivery model. Ironically, one of the areas of BearingPoint expertise she plans to leverage is Sarbanes-Oxley compliance.
Of course, all this talk of emerging opportunities and go-to-market delivery models is meaningless as long as the company can't come up with its financial results. As recently as last July, BearingPoint ranked number one among I.T. service providers in client satisfaction ratings, according to a Forrester Research survey, but the company has not announced any new commercial customers in more than a year.
QUESTION: For year three of Sarbanes-Oxley, do you expect to spend more or less time on documenting your internal controls? Tell us at email@example.com.
Compliance: How BearingPoint Lost Its Way
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