The FBI has begun interviewing former employees of Computer Associates International Inc., focusing on the Islandia, N.Y.,company’s revenue booking around the time of a controversial stock award to top officials in 1998, former Computer Associates staffers said.
In conference calls conducted by agents in the FBI’s Long Island office in the past month, former employees have been asked about the company’s practice of “re-rolling” software maintenance contracts, which shareholders in various suits have alleged allowed the company to “double count” revenue.
Computer Associates has steadfastly denied the charge, and has not been accused by regulators of wrongdoing.
The alleged practice fed hundreds of millions of dollars to the company’s revenue over a three-year period, including 1998, when its top executives were awarded $1.1 billion in stock.
“Our accounting for new contracts that superseded existing contracts was consistent from the early 1980s until 2000,” said Computer Associates spokeswoman Denise DesChenes.
“At that time, at the advice of our auditors, we changed how we classified our expense and revenue. This change in presentation had no impact on reported earnings, earnings per share, or cash flows,” she said.
Newsday last week cited a new shareholder suit against Computer Associates directors in reporting that the company reclassified past revenue when it hired KPMG as its new independent auditor in its fiscal year 2000.
Court transcripts that were recently sealed reportedly show that KPMG in 2000 expressed concerns to Computer Associates officials about its previous revenue recognition practices.
A spokesman for Ernst & Young, which was Computer Associates’ auditor during the period now under scrutiny and has been subpoenaed in the case, said the firm “stands by its work.”
A KPMG spokesman declined to comment.
The FBI is conducting the criminal probe at the request of the U.S. attorney’s office for the Eastern District in Brooklyn.
