Booz Allen stock plummets on word of federal government probe

  • Booz Allen stock falls as much as 13 percent in after-hours trading.
  • Company subject of a DOJ civil and criminal probe over cost accounting.
  • Consulting firm gets virtually all of its revenues from federal government.

Shares of Booz Allen Hamilton sank as much as 13 percent in after-hours trading after the government services firm revealed in a regulatory filing it was the subject of a federal civil and criminal probe in connection with its finances.

Last year, the company derived 97 percent of its revenue from U.S. government business. One of its major customers is the Pentagon, including all four branches of the military, as well as national intelligence agencies. The IRS also is a customer of Booz Allen.

In its Securities and Exchange Commission filing late Thursday, Booz Allen said it was informed June 7 by the U.S. Department of Justice that it was the subject of a probe "relating to certain elements of the company's cost accounting and indirect cost charging practices with the U.S. government."

According to the company's 8-K filing, "To date, our internal and external audit processes have not identified any significant deficiencies or material weaknesses, or identified any significant erroneous cost charging."

Booz Allen added that it was "cooperating with the government in these matters and expects to bring them to an appropriate resolution."

The company declined to comment beyond the filing.

Booz Allen's work with intelligence agencies has sometimes been the source of unwanted attention. There have been at least two cases of security lapses since 2013 involving employees of Booz Allen, including Edward Snowden, who was hired by the firm and leaked National Security Agency documents.

It's unclear exactly what led to the investigation over cost accounting and charging practices, but the ramifications are serious if anything is found given strict government rules that govern contractors.

One federal government rule allows the Pentagon to withhold a portion of payments if deficiencies in contractor or subcontractor accounting or certain other irregularities are found. There also are strict accounting requirements that involve reimbursement of expenses.

Indeed, Booz Allen's 10-K annual document filed last month touches on some of the regulations, laws and unique accounting rules it operates under as a major contractor of the U.S. government.

"Our contracts, performance, and administrative processes and systems are subject to audits, reviews, investigations, and cost adjustments by the U.S. government, which could reduce our revenue, disrupt our business, or otherwise materially adversely affect our results of operations," the company said in the 10-K. "We are also subject to audit by Inspectors General of other U.S. government agencies.