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Whistleblower accuses Infosys of ‘unethical’ practices to boost numbers

An anonymous group calling itself “ethical employees” has complained to the board of Infosys and the US Securities and Exchange Commission (SEC) alleging that the company is taking ‘unethical’ steps to boost short-term revenue and profits.

Updated: Oct 21, 2019, 03.24 PM IST
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Infosys is examining the charges made by the whistleblower, the company said late on Sunday night.
Bengaluru: An anonymous group calling itself “ethical employees” has complained to the board of Infosys and the US Securities and Exchange Commission (SEC) alleging that the company is taking ‘unethical’ steps to boost short-term revenue and profits and stating that the complainants have emails and voice recordings to substantiate the claims.

Copies of the letters sent by the group to both the board of Infosys and the SEC were shared with ET. In the letters, the group alleges that CEO Salil Parekh is bypassing reviews and approvals for large deals. “He (Parekh) directs them to make wrong assumptions to show margins.

CFO is compliant and he prevents us from showing in board presentations large deal issues…Several billion-dollar deals of last few quarters have nil margin,” the letter states. “Please ask auditors to check deal proposals, margins, undisclosed upfront commitments made & revenue recognition,” the letter stated.

Infosys is examining the charges made by the whistleblower, the company said late on Sunday night. “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 letter added that the complainants were asked to not fully recognise visa costs in the quarter and were pressured to not immediately recognise $50 million in reversals in a contract.

“In large contracts like Verizon, Intel, JVs in Japan, ABN AMRO acquisition, revenue recognition matters are forced, which are not as per accounting standards,” the letter stated.

In the second quarter of financial year 2020, Infosys said its margin expanded 120 basis points, topping analysts expectations on profitability.

The letter added that the CEO, and CFO Nilanjan Roy were pressuring the finance team to show more profits in their treasury management ‘by taking risks and making changes to policies’.

“They ask us not to make key disclosures in 20F and annual report and to share only good and incomplete information with investors and analysts. This is a regulatory issue. We have mails and voice records and will share during investigation,” the letter added.

The whistleblower letter to the board is dated September 20, 2019. The letter to the US SEC was first sent on September 27, according to a purported follow-up letter dated October 3. Infosys ADRs trade on the US stock exchanges.

Earlier this month, the company’s deputy CFO 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 cofounder Nandan Nilekani as the non-executive chairman in 2017.

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