Cognizant on Monday said it has recognised $5 million in improper payment towards company-owned facilities in India following an internal investigation. The investigation had earlier resulted in the exit of not only its former president Gordon Coburn but also few other senior management officials. The company, however, said it does not expect any material impact on account of this.
On September 30 this year, Cognizant had disclosed that it was conducting an internal investigation on certain improper payment in possible violation of the US Foreign Corrupt Practices Act. In a filing with the US SEC, Cognizant said, “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 capitalised that should have been expensed. The rest $1.9 million of such payments remains under investigation.”
Cognizant had earlier disclosed that its former president Gordon Coburn had resigned and Rajeev Mehta had come into that position. “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,” the SEC filing said.
Cognizant also admitted that it did not maintain effective control environment which led to the improper payment. It also said that it did not maintain “effective tone at the top” as senior management may have participated in or failed to take action to prevent potentially improper payments.
“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….This material weakness remains unremediated as of September 30, 2016,” the filing said.
In relation to this improper payment investigation, Cognizant is also now faced with two class action suits in US courts seeking compensatory damages. However, the company said it would vigorously defend itself against allegation even as it added, “We are presently unable to predict the duration, scope or result of the internal investigation, of any investigations by the Department of Justice or the SEC or the purported class action lawsuits or other lawsuits.”