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Whistling against Infosys

Infosys has responded to the whistleblower complaint with due seriousness. Its internal auditors EY have been asked to look into the matter

Infosys, the homegrown software giant has been rocked by whistleblowers again and shareholder wealth has been decimated. The last time it had whistleblower complaints were against it’s then CEO Vishal Sikka in 2017, leading to a board room battle and his eventual exit. This time it has been filed by a bunch of employees, who go by the name of ‘Ethical Employees’ and was filed with the Infosys board, a month ago. Upon its being made public, the Infosys share price tanked 16% in the American stock markets in a single day and the loss of shareholder wealth in one single day was a massive Rs.53000 crores.

Until the complaint is investigated and the truth is known, as to whether the allegations are genuine or frivolous, it has cast a shadow on the top management of Infosys led by its CEO Salil Parekh, on its corporate governance, on the authenticity of its financial statements and has built a huge trust deficit about a company, which is otherwise trusted by its shareholders and investors.

The whistleblower complaint basically alleges unethical accounting practices under the guidance of the CEO/CFO of Infosys, in order to show better results by way of sales and profits in the short term. It says that the company has accepted big billions of dollar deals, as with Verizon, Intel, ABN Amro etc. at NIL profit margins, only to show better sales and that this fact has been hidden by its CEO, who has altered the basic cost assumptions in order to show profits.

It further says that the huge expense on account of visa charges has been not accounted and also that contract income reversals of $50 mn have not been shown, only to show better results in the short run. It further says that the treasury team is being pressurised by the top management to show better treasury profits by taking risks and also changing accounting policies.

It is alleged that the CEO has bypassed reviews/approvals for these big deals with NIL margins, for which the CFO has been ever compliant. The whistleblowers further allege that the finance team has been directed only to show good and incomplete information to the auditors and the directors and thus hide vital facts from them, or also from investors and analysts.

The complaint says that they have emails and recorded messages to prove their allegations and have suggested that the auditors of Infosys must be asked to check all deal proposals, their margins and the undisclosed upfront commitments by the company.

Infosys has responded to the whistleblower complaint with due seriousness. Its internal auditors EY have been asked to look into the matter in tandem with Deloitte, its external statutory auditor. It has also appointed a top law firm to investigate the matter, with the CEO/CFO being recused out of the investigation proceedings, to ensure that they are impartial and genuine.

In the meanwhile, the markets seem to be a dividend in their opinion about the whistleblower complaints. While one section dismisses it as frivolous, lacking specifics and too generic in nature, yet another says that these are business decisions of the CEO, which cannot be challenged by a whistleblower. But another section terms the allegations as very serious and material and that something is very rotten since the Deputy CFO had resigned last month and analysts have been questioning the accounting practices of Infosys.

To us, these allegations primarily question business decisions of the CEO.

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