SuccessFactors: Examining Whistle-Blower Claims & Accounting Issues

This case study analyzes the accounting irregularities and whistle-blower claims at SuccessFactors, a cloud-based HR software provider acquired by SAP. The report delves into the company's financial performance, internal control weaknesses, and the allegations of accounting shenanigans that surfaced after its acquisition. It highlights the importance of robust internal controls, ethical management practices, and thorough due diligence during acquisitions. The study concludes with recommendations for preventing similar issues, including management education on fraud indicators, segregation of accounting functions, employee background checks, regular audits, and fraud prevention training. Desklib provides this and many other solved assignments for students.

Running head: SUCCESS FACTORS
SUCCESS FACTORS
Name of Student
Name of University
Author’s Note

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Executive summary
SuccessFactors is a SAP organization; it provides cloud services to various
subscribers. The solutions of SuccessFactors are supported by a specific global partner
ecosystem and the commitment and experience of the SAP. They strive in delivering their
clients and customer’s content, analysis, process expertise, insights of best practices and
innovative solutions by serving their diverse as well as broad customer base; this is done
under a specific model called software as a service. The organization provides various
software resources to their subscribers that are allowed to access them with the help of
internet. This report describes the case of Whistle-Blower Claims Accounting Shenanigans at
SuccessFactors. It discusses regarding the issues faced by the organization called
SuccessFactors. It further provides various recommendations that could have been utilized by
the organization in order to prevent the Accounting Shenanigans.

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Table of Contents
Introduction..........................................................................................................................
Body.....................................................................................................................................
Conclusion...........................................................................................................................
Recommendations................................................................................................................
References..........................................................................................................................

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Introduction
SuccessFactors is a SAP company; it provides the leading SuccessFactors HCM suite
that is based on cloud services. This helps in business execution of HR drive along with
solutions that have been completed and are flexible enough in order to start anywhere- they
help in optimizing a specific workforce and prepare them for future (Sims 2017). The
solutions of SuccessFactors are supported by a specific global partner ecosystem and the
commitment and experience of the SAP. The services provided by SuccessFactors can be
utilized by paying a specific amount of fees (Dinus.ac.id. 2019). This report discusses
regarding the case of Whistle-Blower Claims Accounting Shenanigans at SuccessFactors, it
defines the problems faced by the organization and various recommendations on what should
be done in order to prevent the issues.
Body
The annual revenue of SuccessFactors is around $206 million in the year 2010. The
organization spreads its cost to a huge number of subscribers; this is done in order to keep the
rates of their subscription comparatively low and generating income besides that. Various
subscribers rely on the SuccessFactors for managing their data as well as software in a
reliable along with secured manner (Palmon, Kleinman and Medinets 2018). Subscribers tend
to avoid a huge capital outlay for the equipments of computing and reduce the costs that are
related with the purchase of software and hardware and hiring of various operations of
computer as well as support people. SuccessFactors had been facing various losses in every
fiscal period from the time of its inception in the year 2001. They had faced a loss of $12.5
million along with accumulated deficit of $231.3 million. SAP had bought SuccessFactors for
$3.4 billion. This seemed like they might have overpaid for a business that had turned over

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around $ 327millions at that time but according to their view, SAP had been acquiring the
type of leadership which the organization thinks is important for becoming relevant in the
cloud part of enterprise market. In case of SAP, the great amount of premium was worth the
chance for making a knockout offer.
SAP an idea that SuccessFactors was unprofitable, but the higher authority of
management had reckoned that they have an idea to turn it around. In any type of event, a
specific business operating at contracted hypothetical billings have a particular rate of around
$550 million to $600 millions. This had to be followed in order to drop some profit balls in
case that would help SAP for maintaining a double digit growth (Khaneja and Bhargava
2016). When the SAP had predicted that the cloud revenues of the organization would be up
to 2 billion Euros by the end of 2015. The fact that was not apparent at that particular time
but had been revealed in the filings of SEC is that SuccessFactors had numerous internal
issues which cannot be removed easily. At the time of December 2010, SuccessFactors had
responded to a specific enquiry carried out by SEC regarding few topics. One is related to
what is backlog from the view point of SuccessFactors. This term is used in order to describe
a specific item in which the company is keen and conveys the details that are related to the
particular business (Wokukwu 2015). According to Layman, backlog represents a difference
between what is revenue for SuccessFactors, real invoiced amounts and the overall
anticipated and contracted billings which have been achieved from the deals that have been
carried out during the period of reporting.
SuccessFactors had expected the market to gain knowledge regarding the importance
of the contracted revenue as well as future billings. Various analysts had claimed that it is
difficult to gain insight in SaaS as well as cloud company revenue forecasts; this is because
the model of subscription is very different from ‘throw the CD over the wall and get paid’
model (Amelia 2017). In the essence SuccessFactors have asked the market to believe in their

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analysts because it had been through ‘fake it to make it’ period after IPO. It might be
cumbersome and difficult to look for predictive and good measures when contracts carry out
multi-year and might have ‘get out’ clauses. When companies make various acquisitions it
becomes very complicated, similar to the case of SuccessFactors in 2010 and 2011. In
response to this, numerous vendors including SuccessFactors had used some variation of the
measure of broad billings as a method to steer various analysts in correct decisions besides
finding a specific formula which allows them in staying GAAP complaint. The year 2010
was the year when SuccessFactors had changes auditors and both of them provided them a
clean bit of good health (Dong, Liao and Liang 2016). In this year SuccessFactors had also
changed various methods that it utilized for accounting for income in a part because of
various changes in rules but a part, this is because the business of SuccessFactors had been
more complex.
Conclusion
From the above report it can be concluded that the organization named
SuccessFactors is a leading company which provides various human resources related
software applications that are cloud based. It provides various software resources to its
subscribers that are allowed to access them through internet. The organization spreads its cost
over a huge number of subscribers for keeping their rates of subscription low along with
generating income. SuccessFactors has around 27 million seats for subscription around the
globe. They strive in delivering their clients and customer’s content, analysis, process
expertise, insights of best practices and innovative solutions by serving their diverse as well
as broad customer base. Under the business model of “software-as-a-service” the
organization provides various software resources to their subscribers that are allowed to
access them with the help of internet. Numerous subscribers depend on SuccessFactors in

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order to manage their data as well as software in a secured manner and reliably. This
assignment describes regarding various ways by which SuccessFactors had faced numerous
issues, the report also discusses regarding the recommendations that could be followed by
SuccessFactors in order to prevent these issues.
Recommendations
Usually business owners are busy with managing the employees of the organization,
customer service and many more (Kutera 2018). This makes the business owner neglect the
issues in many cases. In order to prevent the issues mentioned above, SuccessFactors could
have followed numerous recommendations, and these recommendations are as follows
 Educate the management regarding three indicators of fraud: as per the
Association of Certified Fraud Examiners, various frauds in financial
statements involve the publishing of fake data intentionally in a specific
portion of a particular financial statement. In order to help preventing the
frauds taking place, the management of SuccessFactors should be
implementing various internal controls and structures along with gaining
knowledge regarding the situations (Hamilton and Micklethwait 2016).
Individuals commit frauds when they are under financial or situational
pressure, when a specific opportunity for committing fraud is presented and
when a perpetrator is rationalized easily.
 Segregation of accounting functions: an effective system of controlling
internal matters is the segregation of various duties performed by numerous
employees. Management helps in preventing fraud is decreased when various
functions that deal with accounting are separated (Fogarty 2017). Segregation
of duties have separated the record keeping, review functions and

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authorization in the process of accounting. For segregating the duties, a group
of people must be involved in the process of preparing a specific financial
statement.
 Knowing the employees: every organization strives in hiring employees who
are honest in nature, they also tend to have a formal routine for hiring, and this
might contribute in preventing fraud. Background checks of employees must
be carried out by SuccessFactors for all the staff handling cash or while
managing various payments for numerous customers. When the level of
interaction of employees with finances is increased, the scrutiny that has been
paid in the past as well as present must also be increased (Wright 2017). It
might seem counterintuitive, the employees who are involved in fraud are
usually found to be most endeared by coworkers because the person would go
out of their way for helping and gaining trust, usually working for more time
and hardly taking any off. These results in making them handle numerous
duties along with minimum oversight. Similarly various employees who face
financial issues in the personal lives might get tempted. Staffs should be
suggested to take vacations which might help in exposing fraud if it has
occurred and can also help in relieving honest employees.
 Scrutinizing business bank accounts: it is very easy to keep a track of
account activity as well as statements with the usage of online banking
options. This should be done frequently in order to ensure that paper based
statements in office is not manipulated. The main items that might be looked
for are out of order checks, checks that have been signed to a third party
instead of depositing in a specific account (Woolman 2016). Staff must be

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informed that reviewing the check activity is actually a part of a particular
accounting review process and it would help in preventing fraud.
 Auditing books in regular basis: SuccessFactors must audit areas which deal
in refunds, cash, inventory management, accounting functions and product
returns (Wilding 2017). Besides this, some occasional non-scheduled audits
might also help in detecting fraud that are in high risk and are critical business
areas.
 Train the employees to prevent fraud: employees who are present in fraud
prone areas of the organization must be provided the knowledge regard the
warning signs of various frauds, ways to report suspicious behavior or various
actions by customers and coworkers and numerous prevention skills
(Dimitrijevic, Milovanovic and Stancic 2015). The organization must establish
a reporting system that would be anonymous in nature. The management
department along with the owners must create a specific code of ethics which
makes it clear that numerous unethical behaviors would never be accepted.
 Protecting credit card data: frauds regarding credit cards might have
occurred in SuccessFactors. Organization must firmly separate the personal
accounts and business accounts. Mingling of various business funds along
with the personal finances is prone to costly errors; it can also expose the
people to lose the funds on both the sides in case breaching of credit card is
caused (Grove and Clouse 2017). Separating accounts might also result in
keeping track of business expenses in an easy manner. SuccessFactors must be
careful of sources to which they provide their credit card data; they must also
ensure that the source uses that data in a secured manner. Various sites that

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require online bill payments must be used with utmost security.
SuccessFactors must also eliminate the potential for checking theft and fraud.
 Knowing the business partners: before the organization gets into a
relationship with any other business or any individual which needs a specific
level of trust like sending them a particular invoice after they receive a service
or product and many more cases, the organization must ensure that they know
the basis of the business or individual. A background check of the opposite
source must be carried out in order to check that the source is trustworthy or
not. The major deterrent to fraud is knowing the physical address of the
business; this can be done by having an alternate contact method, references
and people (Kelly 2017). Even if the organization carried out a simple web
search regarding the business, it would provide enough data on the business, it
would help them to know if the business that claims so is really in business or
not and for how long are they involved in the business. Web search would also
help SuccessFactors in checking if the business has ever been involved in any
fraud cases or any kind of similar cases that affects the image of the business.
Some more sources that would allow SuccessFactors in gaining additional data
about the business is Better Business Bureau and the local state or provincial
government commerce department.
 Checking every step: the organization must set up various frauds preventing
steps as well as reporting procedures. In this case if the organization does not
follow through by checking the suspicions or reports, then they would
contribute in defeating their own security (Kutera 2018). For reinforcing the
business policy of no tolerance in case of unethical behavior, every case must
be looked at and acted upon.

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References
Amelia, R.W., 2017. Manipulation of financial statements. Kiat bisnis, 6(5).
Dimitrijevic, D., Milovanovic, V. and Stancic, V., 2015. The role of a company’s internal
control system in fraud prevention. e-Finanse, 11(3), pp.34-44.
Dinus.ac.id. 2019. Available at:
http://dinus.ac.id/repository/docs/ajar/ethics_in_information_technology2c_5th_ed._0_.pdf
Dong, W., Liao, S. and Liang, L., 2016, June. Financial Statement Fraud Detection using
Text Mining: a Systemic Functional Linguistics Theory Perspective. In PACIS (p. 188).
Fogarty, T.J., 2017. Action research in accounting. The Routledge Companion to Qualitative
Accounting Research Methods, p.231.
Grove, H. and Clouse, M., 2017. The role of risk management in corporate governance:
Guidelines and applications. Risk Governance & Control: Financial Markets &
Institutions, 7(4-2), pp.92-99.
Hamilton, S. and Micklethwait, A., 2016. Greed and corporate failure: The lessons from
recent disasters. Springer.
Kelly, P.T., 2017. Integrating Leadership Topics into an Accounting Ethics Course–Preparing
Students for a Challenging Profession. In Advances in Accounting Education: Teaching and
Curriculum Innovations (pp. 141-180). Emerald Publishing Limited.
Khaneja, S. and Bhargava, V., 2016. A Comprehensive Review of Literature on Creative
Accounting. International Journal of Business Insights and Transformation, 10(1), pp.46-60.
Kutera, M., 2018. Accounting Manipulations Related to Financial Assets. Management
Sciences. Nauki o Zarządzaniu, 23(3), pp.23-29.
Nersisyan, Y. and Wray, L.R., 2017. Cranks and heretics: the importance of an analytical
framework. Cambridge Journal of Economics, 41(6), pp.1749-1760.