CA (NYSE:CA) makes money by selling software to large companies to help better manage their complex operations, including security, resource management, finance, compliance or business intelligence. But ironically enough, CA now seems to have problems with its own internal operations.
On Tuesday, the company announced that it will delay its fiscal-fourth quarter report and its annual report and will cancel its analyst meeting. That's a smart idea; the company formerly known as Computer Associates would likely get bombarded by myriad questions about a recent accounting snafu.
For example: How did the company not account for an additional $70 million in sales commission expenses? Even for a business the size of CA, this is still a big number. Why couldn't its own fancy software track such a thing? Management is vague on what really happened, alluding to "execution issues." Huh?
Those increased commission expenses helped force the company to lower guidance once again. Instead of a $0.02-per-share gain, the company now expects a loss of $0.07 per share.
Yet the stock price fell only 2.9% on the news. Perhaps Wall Street has come to expect bad news from CA; it's tough for investors to forget the company's previous accounting scandal, which involved inflating revenues by $2.2 billion from 1998 to 2001. Last month, CA's former CEO Sanjay Kumar pleaded guilty to obstruction of justice related to that case.
Current CEO John Swainson indicated that oversights like the absent commission expenses will never happen again. But why did this latest mistake happen in the first place? And why should we believe him, anyway? The overlooked expenses happened on his watch, after all.
In the company's defense, it can be tricky to account for all of the companies CA has purchased. Then again, competitors like Oracle (NASDAQ:ORCL) and IBM (NYSE:IBM) have also been making similar buyouts -- without similar accounting problems.
Interestingly enough, CA admits that it has "a material weakness in its financial controls" -- accounting-speak for "problems with our accounting system." It's usually more of a problem with small-cap companies, not billion-dollar powerhouses that have been public for many years.
The recent scandal may help illuminate why key executives have left CA recently. CFO Robert Davis, COO Jeff Clark, and CTO Mark Barrenechea all departed over the past few months.
The distraction of accounting problems and executive departures is doubtlessly good news for CA's competitors. Investors may also be worried that CA's growth strategy primarily depends on buying other companies, and that the market for large software solutions may be fairly mature.
With CA's stock at a 52-week low and uncertainties regarding its internal operations and leadership, expect the hard times to continue. Any upward move in CA's stock may prove just as delayed as its filings.
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Fool contributor Tom Taulli does not own shares of companies mentioned in this article.
