Module 3 - Worley - Investigation Plan

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Module 3 – Investigation Work Plan | Christina Worley/1-28-24 Module 3 – Investigation Work Plan Case Number: 2002-CA3690 Investigator Assigned: Peter Sarkowski, Senior Investigator, Sarkowski Corporate Investigations, LLC Janice Brown, Senior Investigator, Sarkowski Corporate Investigations, LLC Date Plan Submitted: November 1, 2002 Date Plan Approved: November 5, 2002 Approved by: Christina Worley, Audit Committee Chair Anthony Costello, Associate General Counsel, Office of Legal Counsel, Computer Associates Description of Allegation(s): In February 2002, the federal government began an investigation into the accounting practices of Computer Associates, which led the company’s stock to drop 17% to $20.91. By September 2002, The New York Times printed an article that further questioned Computer Associates’ accounting practices, along with their net income distributions. In May 2002, the Securities and Exchange Commission and the Justice Department began investigating the accounting practices of Computer Associates. Based on the details of the investigation by the SEC and the Justice Department, the current Computer Associates’ CEO has requested an internal fact investigation to determine if the allegations of accounting fraud are accurate.

Module 3 – Investigation Work Plan | Christina Worley/1-28-24 The SEC alleges “that from 1998 to 2000, Computer Associates routinely kept its books open to record revenue from contracts executed after the quarter ended in order to meet Wall Street quarterly earnings estimates” (SEC, 2004). One of the accounting practices in question was to extend or “reroll” a client’s software license and maintenance agreements for as much as ten years. Most of the fees from the extended agreement were filed as new license revenue instead of maintenance. This “reroll” accounting was part of a new business model that was touted by then CEO, Sanjay Kumar (Berenson, 2001, pg. 2). The SEC allegations indicate that Computer Associates prematurely reported $3.3 billion in revenue from 363 software contracts, which violates the Generally Accepted Accounting Practices (GAAP), “which state that revenues should not be counted until both parties have properly signed a contract” (Knowledge at Wharton, 2004, para. 7). The SEC has also made allegations that Mr. Kumar, Mr. Richards, and Mr. Woghin “held Computer Associates’ books open for several days after the end of each quarter to improperly record in that quarter revenue from contracts that were not executed by customers or Computer Associates until several days or more after the expiration of the quarter” (SEC, 2004, para. 6). Subject(s):  Charles B. Wang, Chairman and Founder  Sanjay Kumar, Chief Executive Officer  Stephen Richard, Head of Sales  Steven Woghin, General Counsel  Current and previous Computer Associates’ employees

Module 3 – Investigation Work Plan | Christina Worley/1-28-24 Other Non-Company Subject(s):  I.B.M.  Ernst & Young, Auditing firm for Computer Associates until 1999  KPMG, Current Auditing firm for Computer Associates Potential Code of Conduct and Other Policy Violations:  Potential violation of Generally Accepted Accounting Practices (GAAP)  Potential violation of Computer Associates’ Code of Ethics  Potential violations of multiple sections of Securities Act of 1933 Issues to be Addressed by the Investigation:  Describe the current accounting practices of Computer Associates.  When did the alleged conduct occur and is it still occurring?  Are these allegations policy violations or criminal matters?  Who was involved and complicit in the alleged accounting fraud?  If accounting fraud is corroborated, what did the participants in the fraud scheme gain?  What other employees engaged in the alleged accounting fraud? Were they complicit or unknowing participants?  Who are the potential victims in the alleged accounting fraud scheme?  The SEC has alleged that Computer Associates prematurely recognized over $3 billion in revenue. If the investigation determines there was accounting fraud, the monetary impact needs to be verified. Legal Contact: Marcy Anderson, Associate General Counsel, Office of Legal Counsel, Computer Associates

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Module 3 – Investigation Work Plan | Christina Worley/1-28-24 HR Contact: Jessica Martin, HR Generalist, Computer Associates Proposed Investigation Steps: 1. Collection of Documents and Other Information: a. Client software contracts b. Computer Associates public earnings statements (10-K & 10-Q) for last 5 years c. Ernst & Young (previous auditing firm) auditing statements d. KPMG (current auditing firm) auditing statements 2. Confirm employment, role, and responsibilities of Charles B. Wang, Chairman and Founder, Computer Associates. 3. Confirm employment, role, and responsibilities of Sanjay Kumar, Chief Executive Officer, Computer Associates. 4. Confirm employment, role, and responsibilities of Stephen Richard, Head of Sales. 5. Confirm employment, role, and responsibilities of Steven Woghin, General Counsel. 6. Determine Ernst & Young’s role and responsibilities as the previous auditing firm for Computer Associates. 7. Determine KPMG’s role and responsibilities as the current auditing firm for Computer Associates. 8. Compare auditing records of Ernst & Young and KPMG for similarities and differences. 9. Review the software contracts of Computer Associates’ clients: a. Obtain and review the contracts including approved pricing agreements. 10. Review of Mr. Wang, Mr. Kumar, Mr. Richard, and Mr. Woghin’s email and laptop hard drives. Interviews:

Module 3 – Investigation Work Plan | Christina Worley/1-28-24  Jason Speakman, Senior Contract Manager, I.B.M.  Melanie Smith, former Computer Associates’ employee, interBiz division  Rashaad Martinez, former Computer Associates’ employee, interBiz division  Jayme Byrd, Senior Auditor, Ernst & Young  Elizabeth Dominguez, Senior Auditor, KPMG  Charles B. Wang, Chairman and Founder  Sanjay Kumar, Chief Executive Officer  Stephen Richards, Head of Sales  Steven Woghin, General Counsel  Other interviews TBD and appropriate as the investigation progresses. Searches:  Search of Mr. Wang, Mr. Kumar, Mr. Richards, and Mr. Woghin’s office after hours if the investigation deems this approach appropriate and approved by legal counsel.  Other investigative searches will be determined as appropriate as the investigation progresses. Timeline: The investigation is expected to take 60 to 90 days to complete. This is due to the number of documents that need to be obtained and reviewed, as well as the number of interviews that will need to be conducted. This anticipated timeline is subject to change as the investigation progresses. References

Module 3 – Investigation Work Plan | Christina Worley/1-28-24 Berenson, A. (2001, April 29). A software company runs out of tricks; the past may haunt computer associates. Retrieved from https://canvas.asu.edu/courses/173317/pages/module-3- learning-materials?module_item_id=12383787 Knowledge at Wharton. (2004, October 20). How serious was the fraud at computer associates? Retrieved from https://knowledge.wharton.upenn.edu/article/how-serious-was-the- fraud-at-computer-associates/ Peter A. Stanwick (2008). CA: Computer Associates or Creative Accounting? How corporate culture can influence unethical behavior. Problems and Perspectives in Management, 6(4) U.S. Securities and Exchange Commission. (2004, September 22). Computer associates international, inc., sanjay kumar and Stephen Richards, and steven woghin. Retrieved from https://www.sec.gov/litigation/litreleases/lr-18891#:~:text=The%20SEC%20alleges%20that %20from,Wall%20Street%20quarterly%20earnings%20estimates.

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