A week after iSoft Group Plc delayed the publication of its full-year figures for the second time, the healthcare software provider has now revealed it is looking into possible accounting irregularities.
The announcement was issued by the Manchester, UK-based company after the markets closed on Thursday, and its shares plummeted 10.53% to 55.25 pence ($1.02) when trading began on the London Stock Exchange on Friday. Shares in the company have already plummeted approximately 85% since January following a number of problems and profit warnings related to the UK National Health Service project to computerize patient records.
The board of iSoft has received information suggesting possible accounting irregularities affecting revenue-recognition under its former accounting policy for the years to April 30, 2005, the company said in the statement. The board has therefore commissioned an investigation into these possible irregularities.
The company went to say that it did not anticipate a material impact on revenue figures for the year ended April 30, 2006 on the previously announced figures of 195m pounds ($362m) to 200m pounds ($371m). iSoft also said discussions with its banks to agree a new set of loan agreements continue to be progressed, and said the board will make a further announcement in due course.
Speaking to ComputerWire, an iSoft spokesperson said the irregularities came to light as part of the audit carried out by Deloitte Touche following the adoption of a new accounting policy. Within two hours of the problems being spotted, a board room meeting was convened, said the spokesperson. The announcement was put out 10 minutes after board meeting ended, he said, explaining why the announcement was published after the close of the markets. We are not talking about the misappropriation of cash here, he said. It is simply a revenue-recognition problem.
Earlier this month, iSoft’s shares were hit after it said it would have to delay the publication of its full-year figures for the second time. In January its shares had plunged by over 40% after it slashed revenue and profit forecasts for the fiscal year because of delays in delivering new applications to the NHS.
The Connecting for Health, CFH, project to computerize patient records is one of the largest public-sector IT projects in the world, and consists of a number of contracts with a combined value of $6.2bn pounds ($10.8bn). iSoft is the main applications provider on the Accenture Ltd-led North East and East of England clusters.
Things got worse in March when its share price dropped 18% after service giant Accenture publicly blamed iSoft for causing costly delays to its NHS contracts. A day later however, the NHS blasted the IT giant for trying to pass the blame to iSoft. Richard Granger, director general of IT at the UK National Health Service, said he was surprised by the nature of Accenture’s statement and pointed out that iSoft had actually been selected by Accenture, which as the prime contractor had a clearly defined responsibility to manage its delivery obligations.
This temporary reprieve for iSoft was short-lived however, and in April its shares fell another 11% on market speculation about its finances. In June, the shares fell a further 30% after the company announced that annual profits would be significantly lower than forecast due to a change in accounting policy.
Later in June, CEO Tim Whiston announced he was stepping down. He said at the time that he was concerned that his position at iSoft may represent a source of negative speculation and comment, and therefore he was leaving in order to avoid being an unhelpful distraction to those within [iSoft].
The chairman of iSoft, John Weston, took over as interim chief executive and has appointed a turnaround specialist, Bill Henry, as COO to help with discussions with the banks.
There has been market speculation over possible liquidity issues. At its year-end on April 30, it thought to have had only 15m pounds ($27.7m) in net cash, although it did have gross cash of 77m pounds ($143m). Some speculation said the company has already burned through this since then.
This liquidity issues underlines how crucial negotiations with the banks are. iSoft needs to arrange new funding, but first it has to agree new agreements on its 140m pounds ($259m) loan facility with Barclays, Lloyds, HSBC, TSB, and Royal Bank of Scotland.
The problem for these banks is that iSoft’s role within the NHS project is looking increasingly vulnerable. Accenture head Bill Green has recently hinted during a conference call that he may remove iSoft from the NHS contract. We are watching the iSoft situation closely, he said, before adding that his company is looking at a series of alternatives.
With concerns mounting over whether iSoft is still in a fit state to carry on with the project, the banks could be unwilling to negotiate new agreements, especially considering the threat of iSoft potentially losing such an important contract. The just-announced accounting irregularities are unlikely to help matters.