Technology outsourcing and consulting company Accenture plc (ACN) recently announced that it has reached a settlement with the U.S. Justice Department and will pay a sum of $63.7 million to resolve a whistleblower lawsuit.
In a whistleblower lawsuit, an individual discloses fraudulent or illegal activities and corruption in an organization. Whistleblowers are often present or former employees, or those with access to company documents and internal information.
The lawsuit, which was filed under whistleblower provisions of the federal False Claims Act, held Accenture responsible for rigging bids, accepting bribes and inflating prices of federal contracts. The lawsuit was filed in the Eastern District of Arkansas in 2004, while the government took action in 2007.
The government also accused Accenture of accepting bribes from companies to recommend their hardware and software to the government. The Justice Department also accused Accenture of fraudulently jacking up prices and rigging bids for federal information technology contracts.
In its defense, Accenture denied the charges and asserted that the settlement was made only to put an end to a long-drawn legal battle. The company remains confident that the agreements and dealings with its partners and vendors were apt and legally recognized and were signed with the intention of benefiting customers.
The company also affirmed that the legal settlement would not materially impact its earnings. Moreover, it remains optimistic on its relationship with the federal government. Nevertheless, we think that the allegations could prove detrimental to its goodwill.
Accenture, however, is not the first in the sector to face such allegations. Tech behemoth Hewlett-Packard Co. (HPQ) also faced similar charges, which it settled in 2010.
We remain optimistic about Accenture’s deal wins from various industry verticals. We also believe Accenture’s recent acquisitions will enrich its product portfolio. However, increasing competition from International Business Machines Corp. (IBM) may temper growth prospects to some extent.
Currently, Accenture holds a Zacks #3 Rank, implying a short-term Hold rating.
