Comment on this Article

SEC Hires a Company It's Investigating Hired on Monday to work on the commission's new filing system, BearingPoint earlier reported that it would file its financials late—and that it was under investigation by the SEC.

Marie Leone, CFO.com | US
September 27, 2006

Why We Wrote This Article

Thank you for your comment. It's true that the story's interest factor, if you will, comes in part from the irony of the situation: a serial late filer was hired to build a new filing system. But we don't agree that this is a tabloid-style story, any more than our past reports that the SEC itself has problems with internal controls and poor information security.

Our story was fair: We spoke to the SEC, Bearingpoint, and Keane. We also reported all of Bearingpoint's qualifications for the job. We agree with your comment that "internal financial control issues are not necessarily an indication of poor business product or service quality." But neither can financial filings be divorced from the company's business operations. Financial filings are meant to provide a picture of those operations, and an inability to file raises doubts, however small.

Given that Bearingpoint is now part of a $48 million government contract, we think it is relevant that the company has material weaknesses or deficiencies related to "completeness, accuracy, existence, valuation, and disclosure of revenue, costs of service, accounts receivable, unbilled revenue, and deferred revenue."

We also think it is relevant that Bearingpoint's audit committee concluded that a main factor contributing to the weaknesses in internal controls was tied to the company's financial reporting IT system.

Finally, as we reported separately yesterday, the New York State Supreme Court has ruled that Bearingpoint's failure to file on time puts it in default of its debt covenants. Bearingpoint is appealing. But the company also warned that the ruling could have "material negative consequences" on many of its other debt obligations. We are all too familiar with the potential consequences of setting off a chain of debt covenant triggers.

A spokeswoman from Keane told us the decision to include BearingPoint was based on the firm's experience, and "not on financial issues." Yet under these circumstances, financial issues could have a direct impact on Bearingpoint's ability to perform its contractual obligations to the SEC.

Tim Reason

Editorial Director, CFO.com

Posted by Tim Reason | Sep 28, 2006 9:55 AM ET

Purpose of the Article

No offense folks, but this reads like a star magazine article. What is the point? It is not clear why you are calling this out. Internal Financial control issues are not necessarily an indication of poor business product or service quality.

Posted by Mary Stack | Sep 28, 2006 7:54 AM ET