Software Companies Have Been Down This Path

With Enron, Tyco, and WorldCom making news by their questionable, if not fraudulent, management and accounting practices, it's ironic that some IT suppliers, whose products are designed to help companies manage their finances, can look at today's headlines and say, "Been there. Done that." Just ask Computer Associates, Informix, Microsoft, and MicroStrategy.

MicroStrategy is just now climbing out of the hole it found itself in two years ago, when its auditors discovered that the business-intelligence software developer had overstated revenue for 1998 and 1999. The company blamed its problems on evolving accounting-revenue recognition standards for the software industry, which are sand traps particular to software because of the nature of the product and how it's sold.

Database vendor Informix never fully recovered from the tailspin it went into in 1997 after it was discovered that the company had overstated revenue by $278 million for sales that were never completed. The Securities and Exchange Commission recently spanked Microsoft for accounting violations in which it misstated its income. And Computer Associates' accounting practices are under scrutiny by the Department of Justice and the SEC, which are investigating whether CA wrongly booked more than $500 million in sales in 1998 and 1999.

It takes more than technology to get the right information to directors, executives, and stockholders-it takes ethical principles to produce the correct information in the first place. That's a big part of this mess, says Michael Hoffman, executive director of the Center For Business Ethics at Bentley College in Waltham, Mass. "A lot of this is due to the falsification of information we relied on to make decisions."