AnswerThink Gets Burned

                                     A Cautionary Tale

AnswerThink, a really cool consultancy based out of Florida, apparently got burned recently by a payroll processing agent in the U.K. I pasted in the following text from AnswerThink's own web site below. Please read:

"Investigation into Matters Pertaining to UK Misappropriation

On or about October 26, 2006, the Company learned of a misappropriation by its former UK disbursement agent which relates to funds earmarked for payroll taxes due to the United Kingdom Inland Revenue. The disbursement agent had been utilized by the Company from early 2003 to January 2006 to make payroll, payroll tax and vendor disbursements in the United Kingdom.

After further investigation, the agent has admitted to the misappropriation of the funds. A suit was commenced against the agent in the United Kingdom on October 27, 2006, and certain assets of the former agent have been frozen. The former disbursement agent has offered to pledge, as security, assets equal to a significant portion of the Company's claim. We cannot predict the outcome of this suit or whether our efforts to recover the misappropriated funds will be successful, notwithstanding the offer to pledge these assets. The Company has commenced an internal review to assure that the full extent of the misappropriation is confirmed. The Audit Committee will also conduct its own review of this matter, with the assistance of outside professionals.

The Company estimates the total payroll taxes that should have been paid to the UK Inland Revenue and which were remitted to the disbursement agent for payment for the period in question to be approximately $2 million. There can be no assurance that the Company's actual exposure is limited to these matters or the actual exposure for these tax matters will not increase materially from the estimate provided above or that these amounts will not need to be recorded in prior periods, namely 2003, 2004 and 2005.

The Company indicated that it will likely delay the filing of its Quarterly Report on Form 10-Q for the third quarter, which is due on November 8, 2006 in order to allow for the Audit Committee's independent review and the Company's review of these issues to be concluded and for the required quarterly review procedures to be completed by its independent public accountants BDO Seidman. The Company is unable to predict the ultimate outcome of the review, or the timing of its conclusion. The Company will also consider, in consultation with BDO Seidman, and its former independent public accountants prior to August 2005 as to whether any restatement of prior-period financial statements would be required under generally accepted accounting principles with respect to the matters described above. In addition, the Company has commenced a review of the Company's internal control over financial reporting, including, in particular, its controls over foreign cash disbursements, and whether there has been any material weakness in the Company's internal controls in 2006 and prior periods.

The Company expects to incur expenses in the fourth quarter of 2006 as a result of these matters, including increased legal and accounting costs in the quarter and the fees and expenses in connection with the reviews referenced above. At this time, we cannot predict the amount of such expenses. The actual amount of these expenses will have an impact on the Company's actual fourth quarter results."

(source: http://www.answerthink.com/06_investor/05_financial/fpr_2006/fpr_11012006_01.html )

I've known several of the AnswerThink founders and I really feel for them as they have been taken advantage of by a third party.

In recent years, I've seen some really bad behavior emerge from so-called friends or business partners of a company. In one case, two venture partners conspired to kick out a third because of a side deal they had already cooked up with another firm. In another, two business people wait until a business founder has died and then, and only then, do these two press the widow for a material stake in the company.

The AnswerThink situation reminds us all to double check our business partners, service providers and alliance partners on a frequent basis.

I like AnswerThink and I hope this doesn't cause them long-term expense or PR problems.