Software services giant Infosys has come under a cloud amid allegations of unethical practices to dress up the company’s accounts.
A group of anonymous employees of the company, who call themselves ‘ethical employees’, have accused Chief Executive Officer Salil Parekh and Chief Financial Officer Nilanjan Roy of unethical practices to boost short-term revenue and profit for recent quarters.
They allege that the company’s top management presented a rosy financial picture by ignoring visa costs in one quarter, and not immediately recognizing US$50 million in reversals in one contract.
In a two-page letter to the company’s directors and the US Securities and Exchange Commission dated September 20 they alleged: “Parekh and Roy have been resorting to unethical practices for many quarters, as evident from their e-mails and voice recordings of their conversations.”
A copy of the letter was later accessed by some media groups.
Note to Whistleblower body
When there was no response from the company’s board, another letter dated October 3 was written to the US-based office of the Whistleblower Protection Programme, alleging accounting irregularities for the last two quarters (April-September).
Infosys finally issued a statement on Monday, nearly a month after the first letter was written. It said the whistleblowers’ complaint had been relayed to the audit committee.
“The whistleblower complaint has been placed before the Audit Committee as per the company’s practice and will be dealt with in accordance with the company’s whistleblowers’ policy,” it said in a statement.
The employees’ letter had stated that in the July-September quarter they were asked not to fully recognize expenses like visa costs to improve profits. They also alleged that in the same quarter managers put immense pressure on them to not recognize reversals of a $50-million upfront payment in a fixed depository receipts contract, because it would slash profits for the quarter.
‘Critical details hidden’
“Critical information is hidden from the auditors and board. In large contracts such as Verizon, Intel and joint ventures in Japan, ABN Amro acquisition, revenue recognition matters are forced, which is not [done] as per the accounting standards,” the letter stated.
The complaint alleges that Parekh directs key employees to make “assumptions” to show margins. The employees said they were instructed not to share large deal information with auditors.
The plaintiffs are confident of sharing the alleged emails and voice recordings with investigators when demanded. They have also accused the chief financial officer of working hand-in-glove with the CEO.
The whistleblower group claimed that several billion-dollar deals in the last few quarters had a nil margin and asked the company to get deal proposals, margins, undisclosed upfront commitments and revenue recognition checked by auditors.
The letter also added that the two executives were pressuring the finance team to show more profits in their treasury management. Earlier this month, the company’s deputy chief financial officer Jayesh Sanghrajka resigned.
The last time Infosys faced a whistleblower complaint was during the tenure of former CEO Vishal Sikka, who left in 2017 after a tussle over corporate governance with Infosys founder NR Narayana Murthy. This led to the return of co-founder Nandan Nilekani as non-executive chairman in 2017.
However, this time the charges are more specific and two top executives have been named.
As soon as news of a letter written by whistleblowers surfaced, there was a massive sell-off in the company’s American depositary receipts on the New York Stock Exchange on Monday.
The Bombay Stock Exchange and National stock exchanges were closed on Monday, due to state elections in Maharashtra.