A subcontractor hired on Monday by the Securities and Exchange Commission to work on its new, interactive regulatory filing system doesn’t have enough confidence in its own financial statements to file on time. What’s more, the firm is under formal investigation by the SEC because of the company’s poor internal controls over financial reporting.
BearingPoint, an international management and IT consulting company, was identified by SEC Chairman Christopher Cox on Monday, as being one of the subcontractors working on the technology project aimed at converting existing, and possibly future, regulatory filings from a static electronic format to an interactive XBRL format. XBRL, an Internet-language method of tagging financial data, has been championed by Cox, who has argued it would make the financial statements of public companies easier for investors to examine and compare.
The main contract, worth $48 million, was awarded to Keane Federal Systems, based in McLean, Va. According to Cox, Keane will partner with other technology companies, including BearingPoint, Microsoft, Rivet Software, EMC, and Akamai to update the EDGAR system. The EDGAR (electronic data gathering and retrieval) system currently houses 700,000 regulatory filings.
BearingPoint is considered a “top tier” company by Keane, as well as third-party analyst firms like Forrester Research, for its expertise in “service-oriented architecture” (SOA), a main component of the SEC’s XBRL project. Keane representative Danielle Wuschke told CFO.com that, “frankly, [BearingPoint's] financial compliance issues have nothing to do with the project.” She asserted that BearingPoint is a “well-respected and trusted adviser” to the federal government, and that Keane’s decision to include BearingPoint as a partner on the SEC job was based on the firm’s IT experience, track-record with the U.S. government, and favorable third-party evaluations, and “not on financial issues.”
Steve Lunceford, BearingPoint’s spokesman, confirmed that his company has already done similar IT consulting and development work for 15 cabinet-level departments within the U.S. government. “The filing issues are not affecting our performance,” added Lunceford.
In January, when BearingPoint finally filed its 2004 Form 10-K, the company noted “a number of material weaknesses” regarding its internal controls over financial reporting. The control deficiencies caused a string of prior period restatements dating back to June 2000 to “correct accounting errors and departures from generally accepted accounting principles.” Specifically, the company says that the deficiencies are related to the “completeness, accuracy, existence, valuation, and disclosure of revenue, costs of service, accounts receivable, unbilled revenue, and deferred revenue.”
Further, filings were stalled because the company was awaiting the outcome of a court case related to BearingPoint debt covenants that the company said would affect its financial results. That decision was handed down late Tuesday.
The BearingPoint restatements were the result of an internal audit committee investigation, and eventually triggered a formal SEC investigation. BearingPoint reported last year that the SEC subpoenaed documents related to internal control deficiencies and prior period adjustments. The company says it continues to cooperate with the SEC investigation.