Computer Associates puts on a brave face
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Reports that Computer Associates, the worlds fourth largest software company, is being investigated by the US government for fraudulent accounting practices could not have come at a worse time - just when the company was telling everyone it had cleaned up its act.
"There is almost no asset as important as your reputation". That was the guiding message delivered by Computer Associates (CA) CEO Sanjay Kumar to the Swiss-American Chamber of Commerce in Zurich in early November
He clearly knew what was coming next. Ten days later, Kumar's mentor, Charles Wang - the founder and chairman of CA - resigned with immediate effect, cutting all ties with the company. In the same week, the US Department of Justice
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The investigation was triggered by a series of lawsuits being brought against the systems management company by a group of former sales managers. They claim that CA was guilty of multiple and repeated attempts to manipulate its sales picture. Specifically, they say CA regularly 'backdated' and 'forward dated' contracts in order to book the associated revenue in an advantageous quarter. Additionally, they say, managers encouraged sales staff to bundle free software into customers' maintenance contracts so that the company could reach ambitious financial targets for newer products - notably, its Unicenter systems management product.
This inquiry by the Justice Department comes on top of a year-long investigation by Wall Street's watchdog, the Security and Exchange Commission, into a $1 billion executive bonus scheme introduced by Kumar, Wang, and other members of the CA board.
To establish the truth behind the ex-employees' accusations, the Justice Department has been interviewing, and securing documents from, some of CA's flagship customers, include Allstate Insurance, the second largest personal insurance company in the US.
In the case of Allstate, the allegation is that a major sale was booked by CA a month after the contract was signed so that CA could boost the sales figures of the subsequent quarter. And although this practice of moving bookings around in order to smooth sales curves has been commonplace in the software industry for many years, the accounting rules are clear: When a sale is made, it has to be recorded on the day that the customer signs the contract.
While the 'old' CA may have had a reputation for ruthless sales and accounting practices, Kumar claims that under his tenure CA has reined in any latitude afforded to its once-rapacious sales force or its accounting team. Furthermore, CA has insisted that all the sales cited in reports were properly booked.
Yet, in a report, the Wall Street Journal claims that the Department of Justice and Securities and Exchange Commission (SEC) are looking into transactions made as recently as a year ago - well after Kumar had taken over as CEO and started cleaning up.
Nevertheless, CA's response to the claims has been typically robust. It says that the former staff who are making the allegations are trying to embarrass CA into settling out of court on their claims for unfair dismissal and other breaches of employment law.
Innocent or not, CA's reputation is again a tarnished asset.
