CSC Has To Pay Big Time For National Programme Contract Inaccuracies

Jun 11, 2015
IT giant CSC has agreed to pay the US financial regulator $190m after the latter charged the firm with "manipulating financial results and concealing significant problems" related to its controversial IT contract for the NHS' troubled National Programme for IT.

Launched in 2002, the £11bn project was at one time the largest civilian technology undertaking in the world but the Coalition 'cancelled' it in 2011, after it was alleged to have wasted £6bn, mainly down to major delays over a national electronic patient record that CSC was heavily involved with delivering.

The SEC settlement announced tearlier this month alleges that CSC effectively deceived Wall St about how well the work was going, a process it alleges in a statement was "fraud."

The company started to panic when it learned it would lose money on the NHS contract because it was unable to meet certain deadlines, says the Commission, which led to padding the books: or in its terms, CSC executives added "accounting models that artificially increased its profits but had no basis in reality."?

It then "continued to avoid the financial impact of its delays by basing its models on contract amendments it was proposing to the NHS rather than the actual contract," according to its press statement - while in reality, NHS officials repeatedly rejected CSC’s requests that the NHS pay the company higher prices for less work.

"By basing its models on the flailing proposals, CSC artificially avoided recording significant reductions in its earnings in 2010 and 2011," concludes Uncle Sam - hence this major fine and public slap on the rist.

Failure To Comply

In addition to the $190m penalty, five of eight charged CSC executives have agreed to settlements. Former CEO Michael Laphen will return more than $3.7m in compensation under the clawback provision of the Sarbanes-Oxley Act and pay a $750,000 penalty, while CSC's former CFO, Michael Mancuso, will return $369,100 in compensation and pay a $175,000 penalty.

The executives repeatedly failed to comply with rules requiring disclosure of these issues, and made public statements about the NHS contract that misled investors about CSC’s performance, SEC says.

"When companies face significant difficulties impacting their businesses, they and their top executives must truthfully disclose this information to investors,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement, in a press statement.

“CSC repeatedly based its financial results and disclosures on the NHS contract it was negotiating rather than the one it actually had, and misled investors about the true status of the contract."

(c) 2015 24n.biz
 

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