CSC has told us that the impact of the accounting irregularities at CSC Nordics now has reached $80m. They inform us that the employees responsible have now left the company. Have they really??
The employees concerned in Nordic have no doubt left CSC. But what about the CSC executives with Corporate oversight responsibilities who failed to notice what was happening? Are they still with CSC?
It is hard to believe that responsibility for this begins and ends in Nordic. Here's why:
1. The irregularities seem to relate to deferred (outsourcing) contract expenses which were inappropriately capitalised on the balance sheet. But I cannot recall any major contract wins in Nordic announced by CSC over the past couple of years. Did nobody in CSC think it unusual that the deferred expenses on the balance sheet was increasing, without any significant contract wins? Or was nobody outside Nordic looking at the the balance sheet? What was the Finance function at European and Corporate Headquarters doing? Had they all been redeployed to travel and expense checking or had they been made redundant?
2. Good practice requires a budget be established for capitalised deferred expenses at the level of each contract, and that someone in the company monitor performance against the budget. Did nobody in CSC European and Corporate Headquarters question or even notice the variances against this budget? Or did CSC not attribute budgets to these costs?
3. Is CSC's senior management in Europe and Corporate so out of touch with business reality that they could not simply look at the financial statements of Nordic and say to themselves "Given my knowledge of the business, something just does not feel right about these numbers?". I would expect any good senior business or finance manager to be have such an instinct for the numbers.
4. I do not know CSC Nordic's revenue or profit. But CSC in its press release indicated that the Danish kronor made up 3% of its currency exposure. So let's assume Nordic revenue of 3% of about $16.5bn, which gives close to $500m. Let's assume profit before tax of 8%, which makes $40m for a year. These numbers are just guesses. But even allowing for a significant margin of error, it means the accounting irregularities in Nordic could account for over 1 year's or even 2 years' profit.......and nobody in CSC's management hierarchy noticed?
CSC tell us the people responsible for this problem have left the company. Would CSC tell us why their Corporate oversight functions failed to notice the irregularities in a small unit before they became significant to the Corporation and to its shareholders. And have these people also left the company?
posted by Littlejohn