 "Cognizant finds improper payment worth $5mn in internal probe")
Nasdaq-listed IT services firm Cognizant Technology Solutions in a Securities and Exchange Commission (SEC) filing stated that in an internal investigation it has found a total of $5 million (Rs 33.3 crore) in payments that were not proper.
On September 30, 2016, the company had disclosed that they are conducting an internal investigation into whether certain payments relating to Company-owned facilities in India were made improperly and in possible violation of the US Foreign Corrupt Practices Act, or FCPA, and other applicable laws. The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel.
"To date, the investigation has identified a total of approximately $5 million in payments that may have been improper. During the three months ended September 30, 2016, we recorded an out-of-period correction related to $3.1 million of such payments that were previously capitalized that should have been expensed. The remaining $1.9 million of such payments remains under investigation," said the company in the SEC filing.
It further added that the recorded correction resulted in an increase of selling, general and administrative expenses of $3.1 million, a reduction in depreciation and amortization expense of $0.4 million, and a reduction in property and equipment, net of $2.7 million. These prior period corrections and the $1.9 million in payments under investigation were not material to any previously issued annual or any interim financial statements and are not expected to be material to the financial results for the year ending December 31, 2016, said the company.
More importantly, the company acknowledged that it does not maintain an effective control environment at the top.
"We did not maintain an effective tone at the top as certain members of senior management may have participated in or failed to take action to prevent the making of potentially improper payments by either overriding or failing to enforce the controls established by the Company relating to real estate and procurement, principally in connection with permits for certain facilities in India. Such actions would be inconsistent with the standards and tone at the top to which our Board of Directors and senior management are committed and would be in violation of the Company's written code of conduct and procedures established in part to detect and prevent improper payments," said the statement in SEC filing.
The company further said that based on the results of the investigation to date, the members of senior management who may have participated in or failed to take action to prevent the making of the identified potentially improper payments are no longer with the Company or in a senior management position. As a result of the foregoing, we have determined that a material weakness existed as of December 31, 2015, and continues to exist in subsequent interim periods, in our internal control over financial reporting.
Also, Cognizant, in September, had announced the resignation of the company's president, Gordon Coburn.