Booz Allen Hamilton's criminal probe could drag on for years, CEO says

Monday , August 07, 2017 - 3:53 PM

Aaron Gregg

(c) 2017, The Washington Post.

The Department of Justice’s probe into the billing practices at Booz Allen Hamilton is unlikely to wrap up quickly, the McLean, Virginia, government contracting firm’s chief executive told analysts Monday.

Horacio Rozanski said the criminal investigation could take years to resolve.

“The timeline for resolution remains uncertain, but given the complexity of cost accounting issues and the fact that we are still in the early stages of the investigation, we believe it is more likely to be years than months,” Rozanksi said in a call with investors.

The company disclosed on June 15 that it is under federal investigation for the way it handled “certain elements of the company’s cost accounting and indirect cost charging practices,” but has offered little information on the scope of the inquiry or what prompted it. Indirect costs are typically items like general administrative expenses or other overhead that may or may not be allowed under a government contract.

Rozanski emphasized Tuesday that his company is cooperating with the investigation and no charges have yet been brought. He said it is too early to estimate how much the company would spend on legal expenses, and he said the company had not yet set aside funds to deal with the matter.

The lack of clarity has investors worried.

The investigation “could be [related to] two accounts out of 10,000 or something widespread that is in all of them. We just don’t know,” said Brian Ruttenbur, an analyst with Drexel Hamilton

Ruttenbur said the firm’s stock price has been trading about 5 percent below other firms in its industry, and will likely continue to do so until the issue is resolved. The June 15 revelation that the firm is under criminal investigation was enough to cause the firm’s stock price to drop by 17.8 percent the following day, erasing most of the stock’s post-election gains.

The probe comes as the company is still smarting from allegations that employees Edward Snowden and Harold Martin III were involved in national security leaks.

Rozanski insisted Tuesday that the company has so far seen no impact from the investigation on the company’s ability to bid on new contracts or service old ones.

“Unless it’s something like fraud, I don’t think this would hurt their business per say,” said Cai Von-Rumohr, an analyst with Cowen investment bank. “It certainly didn’t in the first quarter [of 2017]; their bookings were sensational.”

If history is any guide, the financial pain is likely to be small. An analysis of seven similar cases conducted by Cowen investment bank found the firms typically settled for less than $9 million. That’s a relatively small sum for a company as large as Booz Allen, which takes in almost $5.5 billion each year.


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