A LETTER FROM PRISON

Problem Statement
 Computer Associates International, Inc.
(CA) is currently facing the problems
related to the financial fraud allegations
against the company. As, the company
finds it more difficult to accurately
forecast the revenues as well as earrings
for each quarter of their sales targets.
Company overview
 Computer Associates International, Inc. (CA)
is founded by the Charles Wang in the year
1976 in order to meet the growing needs of
the mainframe computing software for IBM
computers.
 The most of the software products are sold
by the sales team of the Computer Associates
to the clients who buy a license to use the
product for a period between three to ten
years.
Case Analysis
 The case analyzes the overall situation of the
Computer Associates International Inc. (CA) related
to the allegation about the financial fraud within the
company by a few executives of the Computer
Associates
 The fraud that the SEC refers to was backdating of
contracts to prop up quarterly revenues and earnings
figures to meet market expectations. It violated GAAP,
which state that revenues should not be counted until
both parties have properly signed a contract.
 The practice improperly inflated revenues by 25%,
53%, 46% and 22%, respectively. The SEC said the goal
was to meet or beat per-share earnings estimates of
Wall Street analysts, a key to keeping a company’s
stock price rising.
Questions & Answers
Question-1
 Richard’s performance was dependent on
sales target of his team.
 Major influencer of these targets were
analysts which manipulated investors
decision in order to show the company in
good health.
 Which in turn created challenges for
richard and his team to the achieve the
target.
Question-2
 There were certain regions which were not exactly
black & white ,these forces influenced Richard’s team
to venture in the grey region , which seemed legal but
however they were illegal as per GAAP policies.
Question-3
 These goals were major drivers for the success of the
company as the EPS kept on increasing.
Question-4
There are some grey practices such as reserve
manipulation ,product release date and manipulation
in shipping procedures, which questioned the true
picture of health of organization.
Question-5
 Yes, backdating the contracts was the consequence of
this flexibility.
Question-6
 It played a huge role as million dollar compensation is
a very lucrative offer to venture someone in grey
zone.
Question-7
 It is a critical component aligned the pay of executive
to shareholder’s value. Higher the EPS higher is the
compensation.
Question-8
 Sales target of employee well being.
Question 9
 Experience will value certain organizations
who wants these kind of things should not be
repeated.
Question-10
 It helped him to recognize him the value of
family & friends.
Question-11
 There are positive and negatives of this aspect
because some may misuse the value of
information and power, on the other hand
some help to avoid such circumstances
because of their leanings.