Individual executives who knowingly certify inaccurate financial results could face substantial civil and criminal penalties under the Sarbanes-Oxley Act. It calls for maximum prison terms of 20 years for a false certification.
BearingPoint began its Sarbanes-Oxley effort soon after the act was passed. McGeary said it was evident to him that the company was having problems with the regulation when he became chief executive in early November.
Congress passed the act in the summer of 2002, after financial scandals at Enron Corp. and WorldCom Inc. drove the companies into Chapter 11 bankruptcy protection and cost investors billions of dollars. The law, among other things:
Requires chief executives and chief financial officers to certify the accuracy of their companies' financial results.
Limits the type of work independent auditors can perform for clients.
Increases the criminal penalties for destroying or tampering with documents.
Bars companies from awarding top executives preferential loan deals.
Plenty of Problems|
In recent months, several Washington area companies have disclosed problems with their accounting controls.
BearingPoint Inc., MCLEAN
Told investors in December that it may not meet the deadline for filing its year-end financial statement because auditors had detected possible weaknesses in its financial controls.
CompuDyne Corp., Annapolis
Announced Feb. 23 that it would delay release of its financial results for 45 days to complete as much work as possible on reviews of its internal controls.
Fannie Mae, Washington
Outside auditors last year cited "strong indicators of material weaknesses" in internal controls at the mortgage giant, which may be forced to restate earnings by as much as $9 billion because regulators said it had misapplied accounting policies.
Freddie Mac, McLean
New auditors at the mortgage company found billions of dollars in accounting errors and control problems last year that the company is correcting and restating.
Mills Corp., Arlington
Disclosed Feb. 16 that it would restate earnings back to 2002 because of accounting problems that a company executive called "a byproduct of the Sarbanes-Oxley environment."
TalkAmerica Holdings Inc., Reston
Issued news release Feb. 16 saying it would delay announcing its fourth-quarter earnings and may have to restate its profit because outside auditors may have uncovered "material weaknesses" in the company's accounting controls.
From 1997 to 2000, McGeary was the company's co-chief executive with Randolph C. Blazer, who later took over the top spot alone. Blazer resigned, with the board of directors' consent, on Nov. 10.
McGeary said tackling Sarbanes-Oxley was among his first priorities. Within days, he dispatched Thomas G. Wilde, who previously led one of the company's primary business units, to direct the effort and asked that the project be treated as though it was a crucial consulting job the company was doing for a client.
"Our Sarbanes-Oxley effort is global. We've got people looking at everything," Wilde said. "It's got some positive aspects, but looking at [the regulation] from a realistic perspective, it comes with some pain."
McGeary said he keeps close tabs on the effort and is briefed weekly by phone and in person once a month. Leaders of many public companies describe Sarbanes-Oxley as a huge undertaking, but McGeary said getting BearingPoint's affairs in order was especially complicated.
The company had invested in an internal computer system to manage all of its bills, payments and contracts. But BearingPoint executives quickly realized that the system had a number of problems that on their own could compromise the company's accounting controls.
"Things were falling through the cracks," McGeary said. A company with a flawless billing system that had been in place for years may not have encountered such problems.
The company ran headfirst into low-tech problems -- mistakes by its own accounting staff. After issuing its third-quarter earnings report last year, the company had to restate its financial results because several invoices had been counted twice.
Then the accounting team found another mistake. The second error was tough to swallow, according to a source close to the matter. The firm's internal accounting staff discovered the mistake during a routine reconciliation procedure to close the books for the quarter. The company's controller was told of the clerical mistake first, and it was his job to tell the chief financial officer, who had to put another piece of bad news on the desk of the new chief executive.