Infosys Audit Finds No Merit In Whistleblower Allegations Against CEO Salil Parekh
Infosys concluded that the allegations in the anonymous whistleblower complaint on Oct. 21, 2019 are “substantially without merit”
An independent investigation into whistleblower allegations of “unethical practices” at Infosys Ltd. has found no evidence of financial impropriety or misconduct by its Chief Executive Officer Salil Parekh and Chief Financial Officer Nilanjan Roy.
The audit committee concluded that the allegations in the anonymous whistleblower complaint dated Oct. 21, 2019 are “substantially without merit”, the software services exporter said in a media statement. “The audit committee concluded that no restatement of previously announced financial statements or other published financial information is warranted.”
The audit committee took the anonymous whistleblower complaints very seriously and commissioned a thorough investigation with the assistance of independent legal counsel. The audit committee determined that there was no evidence of any financial impropriety or executive misconduct.D Sundaram, Audit Committee Chairperson, Infosys
In October, a letter from a group of “Ethical Employees” had accused Parekh of “unethical practices” in “recent quarters” to boost short-term revenue and profits. Employees were asked not to fully recognise costs like those for visas of employees to improve profits, according to the letter dated Sept. 20 addressed to the company’s board and the U.S. Securities and Exchange Commission. Infosys Chairman Nandan Nilekani had assured investors of an “objective” investigation into the allegations.
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Key Allegations And Investigation Findings
Regarding the key allegations made in the whistleblowercomplaints -
1. Infosys’ investigation found that allegations regarding revenue recognition of three large deals/ joint ventures are “unsubstantiated”.
The whistleblower letter had alleged that revenue recognition in large contracts involving Verizon Communications Inc., Intel Corp., the company’s joint venture in Japan as well as acquisition of Stater NV, a subsidiary of ABN AMRO Bank NV, were “forced” and not as per accounting standards.
2. Infosys’ investigation found that in the case of one large deal it exercised its judgment in deciding to follow a Percentage of Completion cost method versus the Straight Line Method it has historically applied for a substantial majority of its fixed-price maintenance contracts. Since POC is in conformity with accounting standards and the company’s accounting policy, and since no evidence suggests this decision was “forced”, no specific disclosure was required to be made to the Audit Committee.
3. The investigation did find that accounting of the obligation with respect to a service credit (and the related provision) was not in accordance with applicable revenue recognition principles. The reversal of this would have helped offset revenue and margin softness, the investigation found. But the company determined “that the reversal/non-accounting of provisions are insignificant and are neither qualitatively nor quantitatively material to the reported revenues or operating margin guidance”.
4. The whistleblower letter had alleged that Parekh and Roy had asked the whistleblowers to show “more profits in treasury operations” by raising risks and changing policies.
Infosys’ investigation found the allegations regarding treasury policy are “unsubstantiated” as the company complied with its policy without any interference or pressure from either the CEO or the CFO.
The investigation also cleared Parekh of several allegations of personal impropriety.
It concluded that
- Travel between the company headquarters in Bengaluru and his home in Mumbai was for business purposes.
- Parekh was in compliance of all taxes in U.S.A.
- His bonus computation and payment was done as per company policy.
- He had attended a majority of committee and board meetings during the period of review.
- No evidence was found of personal investments by Parekh in small companies in Mumbai
- There was no evidence that he proposed funding to any foreign universities or used the company’s connections for securing his child’s admission.
- And, that he had paid for the tickets when his children accompanied him to a tennis event as part of a company delegation.
The investigation team’s review of information pertaining to the allegations encompassed the time period January 1, 2018 to September 30, 2019. No limitations or restrictions were placed on the investigation team’s access to information, and the company, its directors and employees cooperated fully.Infosys Statement
Nilekani expressed confidence in Parekh’s leadership after the audit committee’s clean chit. “CEO Salil Parekh and CFO Nilanjan Roy are strong custodians of the company’s proud heritage,” he said in the media statement. “Salil has played a key role in reinvigorating the organisation and driving momentum and the board is confident that he will continue to execute on the company’s new strategic direction successfully.”
The audit committee was aided by law firm Shardul Amarchand Mangaldas & Co. and PricewaterhouseCoopers Pvt. Ltd. for the investigation—which included 128 interviews with 77 persons and reviewing of more than 2.1 lakh documents.
Shares of Infosys closed 1.47 percent higher ahead of the earnings announcement compared with the benchmark BSE Sensex’s 0.36 percent gain.