Computer Associates 2005 Annual Report Download - page 83

Table of Contents
As previously reported, and as described further in Note 7, “Commitments and Contingencies” of the Consolidated Financial Statements,
in September 2004 the Company reached agreements with the USAO and SEC by entering into the DPA with the USAO and by
consenting to the SEC’ s filing of a Final Consent Judgment in the United States District Court for the Eastern District of New York. The
DPA requires the Company to, among other things, undertake certain reforms that will affect its internal control over financial reporting.
These include implementing a worldwide financial and enterprise resource planning information technology system to improve internal
controls, reorganizing and enhancing the Company’ s Finance and Internal Audit Departments, and establishing new records
management policies and procedures. The Company believes that these and other reforms, such as enhanced procedures to assure proper
recognition of revenue, should enhance its internal control over financial reporting. For more information regarding the DPA, refer to the
Company’ s Current Report on Form 8-K filed with the SEC on September 22, 2004 and the exhibits thereto, including the DPA.
During the fourth quarter of fiscal year 2005, the Company also continued documenting, testing, and making improvements to its
internal controls in light of Section 404 of the Sarbanes-Oxley Act of 2002. These improvements include additional controls, such as
management-level approvals, institution of an anti-fraud program, management-level delegations of duties, segregation of
responsibilities, and software order-to-shipment review, as well as more comprehensive documentation of key control activities in the
areas of tax, financial reporting, software development, indirect sales, accounts payable and professional services. The process is
ongoing and the Company will continue to address items that require remediation and work to improve internal controls and to educate
and train employees on controls and procedures in order to establish and maintain effective internal control over financial reporting.
Planned remediation efforts regarding the material weaknesses in internal control over financial reporting related to the restatements of
financial statements include the following:
• Maintaining a separate schedule of credits granted under software contracts executed under the Company’ s prior business model;
• Requiring the financial reporting department to review, on a quarterly basis, credits related to software contracts executed under the
Company’ s prior business model to determine the proper accounting for any such credits;
• Periodic testing by Internal Audit of the completeness and accuracy of the credit schedule prepared by the Sales Accounting
department and of all accounting entries related to the utilization of any such credits by the Company’ s customers; and
• Monitoring the renewal of prior business model license agreements to ensure that any remaining deferred maintenance and
unamortized discounts are recognized ratably over the life of the new subscription based license agreement.
Subsequent to March 31, 2005, the Company has taken several steps toward remediation of the material weakness relating to the control
environment in its EMEA region described above. The Company has been and is implementing enhancements to its internal control over
financial reporting intended to provide reasonable assurance that the ineffective control environment in the Company’ s EMEA region
will be remediated and not recur. Steps already taken include:
• The commencement of disciplinary proceedings against members of management and other employees in the EMEA region
leading to their resignation or termination subsequent to March 31, 2005;
• The appointment of a new General Manager for the EMEA region in June 2005;
• The appointment of a new Head of Procurement for the EMEA region in June 2005;
• The hiring of a new Head of Facilities for the EMEA region who will commence employment in July 2005; and
• The appointment of a new Assistant General Counsel for the EMEA region in December 2004.
The remediation of the control environment in the EMEA region is ongoing. As of March 31, 2005, certain enhancements were not yet in
place and/or were not in place for sufficient time to fully determine their effectiveness as of March 31, 2005. Other planned
enhancements include, the hiring of new senior finance management personnel for the EMEA region, implementation of additional
segregation of duties and responsibilities within the EMEA region and additional education and training. Management is committed to
the rigorous enforcement of an effective control environment.
Management believes that the efforts described above, when fully implemented, will be effective in remediation of the material
weaknesses identified in Management’ s Report on Internal Control Over Financial Reporting, as described above.
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