CA Makes Changes To End '35-Day Month'

Among the changes taking place at the embattled software company, which is facing a federal investigation into its accounting practices, are a move from a proprietary internal accounting system to an industry- standard ERP application at a cost of $5 million to $10 million and the appointment of a chief compliance officer and a chief accounting officer to ensure "accounting integrity and policy adherence," said new COO Jeff Clarke.

"I will broadly communicate and enforce a no-tolerance policy for infractions of accounting integrity and business controls," said Clarke, who will oversee CA's direct-sales effort. He noted that the firing last week of nine employees in the finance and legal departments sends an important message that "we won't tolerate wrongdoing."

The management team's get-tough message came after CA, Islandia, N.Y., restated financial results for 2001 and 2001. The restatement comes after CA's Audit Committee found, as part of a more than $30 million investigative effort, that the software maker had a practice of "prematurely recognizing revenue on software license agreements for several years prior to CA's adoption of its new business model" in October 2000. CA admitted that it had extended the financial period after the end of the fiscal quarter in order to recognize revenue from "contracts that were not executed by the end of such fiscal quarter." The committee stressed that the "35-day-month practice involved the premature timing of revenue recognition, not the making up of revenues."

Clarke, a former Hewlett-Packard executive who joined CA earlier this month, said CA has reorganized the finance function to ensure there are proper checks and balances on the sales force. CA also plans to appoint finance executives who will be aligned with the sales teams in a bid to improve the finance team's ability to "review and certify and audit operational results," said Clarke.

Clarke will oversee CA's new top sales executive, Greg Corgan, who was named to the post of senior vice president of sales on Monday after CA sales chief Stephen Richards resigned. For the time being, Clarke is going to act as both COO and CFO. The company, however, aims to search for a new CFO, he said.

CA board member and interim CEO Ken Cron, the original publisher of CRN, meanwhile, said he will not put his hat into the ring as a candidate for the permanent CEO post. CA is currently interviewing executive search firms and doing an analysis of the requirements for the position, said Chairman Lewis Ranieri. He said that the board has decided going forward to maintain a separation of the chairman and CEO roles.

Noting that former chairman and CEO Sanjay Kumar, who is now acting as CA's chief software architect, has put a strong management team in place, Ranieri said the company has "no sense of crisis; as a result, we want to do this [CEO] search well, rather than quickly."

Cron, meanwhile, said he is aiming to focus on "new initiatives for this year including building and expanding our partnerships and on addressing the important small and medium-size enterprise market." Cron said the company's aim is to grow "rapidly in the security space" and continue to build its infrastructure, storage and life-cycle management businesses.

Cron said he is looking forward to Kumar architecting the company's product vision for the furture and taking it to "another level."

Cron said there will be no structural changes in the sales operation, with direct sales and the channel effort remaining separate. Furthermore, he said there has been no significant changes within sales regions or in the "configuration of the sales force out to the customer."

Valeh Nazemoff, director of business development at DataTech Enterprises, a Fredericksburg, Va., CA solution provider, said she is anxious to see if CA's new management team puts some muscle behind its channel effort. "I am hopeful they will not just focus on the direct-sales force, but how the direct-sales force can work effectively with partners," she said. The 35-day month, or prematurely booking revenue, has not been an issue in the channel, said Nazemoff.

Ranieri said CA's Audit Committee left no stone unturned in its exhaustive investigation, which he noted consisted of a review of 1,000 CA customer license agreements, conducting interviews with more than 100 CA employees, and reviewing tens of thousands of e-mails. As part of the investigation, CA hired PricewaterhouseCooper's forensic technology experts, who spent six months and more than 5,000 man-hours analyzing the company's repositories of electronically stored information. PWC's team recovered more than 1.5 million files including e-mail messages, attachments and user files, which were reviewed by dozens of lawyers and accountants. More than 300,000 files were culled and further reviewed with more than 25,000 pages turned over to the federal government, said Ranieri. He said that individuals who did not cooperate in the investigation were asked to "resign from the company."

As a result of the investigation, Ranieri said that bonuses and other compensation paid to officers who are the subject of the investigation are "under review." The practices the committee uncovered are "utterly unacceptable. They will not be tolerated at CA and will not happen again."

Ranieri said CA is interested in meeting with government officials as "soon as possible" to attempt to address concerns and put the accounting issue behind it. That said, he did not have any estimate on how quickly the government investigation will be resolved.

"We will certainly engage the government as quickly as feasible in conversations to put the process behind us," said Ranieri.

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