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Journalism of Courage
In a major development in the Satyam fraud case,US regulators fined the software firm and its auditors PriceWaterhouse India up to USD 17.5 million for the accounts bungling that went undetected for several years.
The US Securities Exchange Commission said that Satyam Computer Services have agreed to pay a fine of USD 10 million towards settlement of charges of fraudulently 8220;overstating the company8217;s revenue,income and cash balances by more than USD 1 billion over five years8221;.
Also,the statement said,Lovelock amp; Lewes and Price Waterhouse Bangalore have agreed to pay the Public Company Accounting Oversight Board PCAOB a USD 1.5 million penalty for their violations of PCAOB rules and standards in relation to the Satyam audit engagement.
8220;PW India violated its most fundamental duty as a public watchdog by failing to comply with some of the most elementary auditing standards and procedures in conducting the Sataym audits. The result of this failure was very harmful to Satyam shareholders,employees and vendors,8221; said Robert Khuzami,Director of the SEC8217;s Division of Enforcement.
While Satyam could not be contacted for comment,Deepak Kapoor,Chairman of the PwC network of firms in India,said: 8220;Our settlements with the SEC and PCAOB are positive steps and important milestones for PW India. The confession of fraud at Satyam by its chairman was a shock to the Indian business community and to all concerned8221;.
Besides,the SEC statement said,PW India affiliates agreed to refrain from accepting any new US-based clients for six months,establish training programmes for its officers and employees on securities laws and accounting principles; institute new pre-opinion review controls; revise its audit policies and procedures; and appoint an independent monitor to ensure these measures are implemented.
Cheryl Scarboro,Chief of the SEC8217;s Foreign Corrupt Practices Act Unit,said: 8220;PW India failed to conduct even the most fundamental audit procedures. Audit firms worldwide must take seriously their critical gate-keeping duties whenever they perform audit engagements for SEC-registered issuers and their affiliates,and conduct proper audits that exercise professional skepticism and care.8221;
The SEC8217;s order instituting administrative proceedings against the firms finds that PW India staff failed to conduct procedures to confirm Satyam8217;s cash and cash equivalent balances or its accounts receivables,it said.
Specifically,the order finds that PW India8217;s 8220;failure to properly execute third-party confirmation procedures resulted in the fraud at Satyam going undetected8221; for years.
The SEC statement said that PW India8217;s failures in auditing Satyam 8220;were indicative of a quality control failure throughout PW India8221; because PW India staff 8220;routinely relinquished control of the delivery and receipt of cash confirmations entirely to their audit clients and rarely,if ever,questioned the integrity of the confirmation responses they received from the client by following up with the banks8221;.
In January 2008,Satyam Computer founder B Ramalinga Raju had admitted to committing an accounting fraud of about Rs 7,000 crore spread over a period of five years. SEC had filed a complaint in US District Court alleging that former senior officials at Satyam used false
invoices and forged bank statements to inflate the company8217;s cash balances and make it appear far more profitable to investors.
Satyam8217;s American depository shares traded on the New York Stock Exchange.
After the fraud came to light,Satyam was taken over by the government and was later acquired by Mahindras.
