Satyam: The irony lies in the name – Satyam, meaning truth. The real truth is that Ramalinga Raju, the politically-connected, promoter-chairman of Hyderabad-headquartered Satyam Computers, was lying for years to shareholders, employees and the world at large, building up to India’s largest-ever corporate fraud of over Rs 7, 000 crores.
The country’s fourth largest IT company – after TCS, Infosys and Wipro and ahead of HCL – was for several years cooking its books by inflating revenues and profits, thus boosting its cash and bank balances; showing interest income where none existed; understating liability; and overstating debtors’ position (money due to it). The 54-year-old US MBA Raju’s letter of guilt and resignation to the Satyam board and SEBI on Wednesday morning sledge-hammered India Inc, dumbfounded regulators, pummelled the company’s stock, knocked the bottom out of the market, and cast a long shadow over industry in general and the IT sector in particular.
It also raised disconcerting questions about corporate governance, the role of auditors (in this case Pricewaterhouse Coopers) and independent directors (Satyam has its share of luminaries such as ISB dean M Rammohan Rao, Krishna Palepu of Harvard Business School who resigned and former union cabinet secretary T R Prasad). This wasn’t some small fly-by-night operator that had been caught out. Satyam is listed on the New York Stock Exchange, boasts 185 Fortune 500 companies on its client list and employs 53, 000 people – that’s equal to the combined number of employees of Tata Steel and Tata Motors (30, 000 and 23, 000 respectively). pic] Within hours of the Satyam scandal hitting the headlines, its employees had flooded job portals across the World Wide Web in search of alternate employment. Consider that the Rs 7000-plus crore hole in Satyam’s books is way more than the company’s entire salary bill of Rs 5, 040 crore last year. Worse still, it’s running really low on cash, and once-potential suitors have turned wary – they don’t know what lies beneath. As for Satyam’s shareholders, the stock had gone into freefall before they could even make a decent exit.
By the end of the day, large-scale selling by foreign institutional investors, among others, had driven the stock down by almost 78% to just a shade below Rs 40 from Tuesday’s close of a little over Rs 179, wiping out Rs 9, 376 crore of investor wealth in the space of a day. Compared to its closing price of Rs 225 on December 15, the stock is down more than 82%. The day after, Raju announced his ill-fated plan to shell out $1. 6 billion to acquire his sons’ companies, Maytas Properties and Maytas Infra. It created such a furore that Raju was forced to backtrack.
But what was widely seen as a move by Raju to bail out his sons was actually aimed at covering Satyam’s tracks through fictitious cash transfers (details inside). The timing of what is being called `India’s Enron’ could not have come at a worse time – just when the stock market was showing signs of responding positively to the Centre and RBI’s moves to stimulate the economy through interest rate cuts, duty reductions and accelerated government spending. A day after the sensex crossed the 10, 000-mark, it plunged by 749 points, wiping out almost Rs 1. 3 lakh crore (or trillion) of market capitalization.
There’s intense speculation as to what finally triggered Raju’s confession of wrongdoing. It’s clearly more than coincidence that it came hot on the heels of investment banker DSP Merrill Lynch’s letter to the company on Tuesday evening (followed by another to Sebi this morning) terminating its 10-day-old agreement with Satyam to advise it on strategic options because of “ material accounting irregularities”. But the beginning of the end came when furious investors forced Raju to reverse his decision to acquire the two group companies (Maytas Properties and Maytas Infra), robbing him of his last chance to wriggle out of a very tight corner.
By the end of Wednesday, the knives were out with Sebi, the stock exchanges, the Indian Chartered Accountants Institute, the department of company affairs and institutional investors announcing/considering a flurry of probes/actions against Raju, Satyam and its auditors. NYSE has halted trading in Satyam ADRs (American Depository Receipts). Fearing violence, the Hyderabad police threw a cordon around Satyam’s offices and Raju’s residence in upmarket Jubilee Hills even as the company’s whole time director-now-interim CEO Ram Mynampati, after expressing shock”, swung into damage control mode.
Satyam Computer on Wednesday plunged into a deep crisis, as B Ramalinga Raju resigned as its chairman after admitting to major financial wrong-doings and saying his last-ditch efforts to fill the “ fictitious assets with real ones” through Maytas acquisition failed. [pic] The beleaguered IT giant, already under scanner over the aborted acquisition of firms promoted by the chairman’s family, received a rude shock days ahead of its January 10 board meeting, with Raju stepping down along with his brother and Managing Director B Rama Raju. It was like riding a tiger, not knowing how to get off without being eaten,” Ramalinga Raju said in a letter to Satyam’s Board of directors, wherein he listed major financial wrong-doings over the years to inflate the profits. Listed at New York Stock Exchange, the company could face regulatory action in the US, analysts said. While Raju recommended DSP Merrill Lynch be entrusted the task of “ quickly exploring some merger opportunities,” the company informed the stock exchanges that the investment banker has terminated its engagement with Satyam.
Noting that every attempt to eliminate gaps in balance sheet, purely on account of inflated profits over several years, failed, Raju said: “ I am now prepared to subject myself to the laws of the land and face consequences thereof. ” Low percentage of promoter equity in the company, where four independent directors resigned in the last two weeks over the acquisition fiasco, could lead to a takeover and expose the gap, he said in the letter, also sent to regulator SEBI. The promoters’ share in Satyam has now dipped to just over 3% that too is pledged with lenders.
Shares of Satyam plunged by over 50% immediately after the announcement of resignations, necessitating an overhaul of the Board and management. Raju will continue as chairman till the Board finds a replacement, even as speculation was rife that Satyam President Ram Mynampati would take over as chairman. Rama Raju would also continue as Managing Director, but only till the time the Board is expanded. Ramalinga Raju requested the Board to “ hold together” to take some important steps, while hoping that one of the Board members T R Prasad was “ well-placed to mobilise support from the government at this crucial time. Satyam is the country’s fourth largest IT firm and has over 51, 000 employees. Giving details of the financial irregularities, Raju said the company’s balance sheet as of September 30 carries “ inflated (non-existent) cash and bank balances of Rs 5, 040 crore (as against Rs 5, 361 crore reflected in the books. ” The balance sheet also carries “ an accrued interest of Rs 376 crore which is non-existent, an understated liability of Rs 1230 crore on account of funds arranged by me (Raju), an overstated debtors position of Rs 490 crore (as against Rs 2651 crore reflected in the books,” Raju said.
He further said that Satyam reported a revenue of Rs 2700 crore for the September quarter and an operating margin of Rs 649 crore (24% of revenue) as against the actual revenue of Rs 2112 crore and an actual operating margin of Rs 61 crore (3% of revenue). “ This has resulted in artificial cash and bank balances going up Rs 588 crore in Q2 alone,” Raju said. “ The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years,” Raju further said. “ It has attained unmanageable proportions as the size of the company operations grew significantly… The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations thereby significantly increasing the costs,” he said. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas’ investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam’s problem was solved, it was hoped that Maytas’ payments can be delayed. But that was not to be,” he said. Raju, however, claimed that neither he, nor the Managing Director (including our spouses) sold any shares in the last eight years-excepting for a small proportion declared and sold for philanthropic purposes.
Raju further said he or the company’s MD did not take “ even one rupee/dollar from the company and have not benefited in financial terms on account of the inflated results. ” There are several hypotheses and rumours about the real reason behind Ramalinga Raju’s decision to throw in the towel at this particular juncture. Nobody knows the exact trigger for his letter to board members on Wednesday. But there are some guesses — was it financial advisor DSP Merrill Lynch’s due diligence, was it realisation that the game was up or was it some other reason?
According to a story doing the rounds of Hyderabad, the day after K S Raju of Nagarjuna Finance was arrested last month, Ramalinga Raju is believed to have rushed to AP chief minister Y S Rajasekhara Reddy, pleading that leniency be shown towards a fellow businessman. What Reddy told Ramalinga Raju is not known, but a day or two later, K S Raju was able to check into a private hospital, ostensibly for a heart problem. Three weeks later, K S Raju is still in the hospital, though there is no additional information about the state of his health.
So, is it a promise of similar “ favoured” treatment that gave Ramalinga Raju the confidence to own up on Wednesday? Sources say that Ramalinga, who had not been attending office regularly for the past three weeks, might have decided to give in two days ago, when he found his game was up. He realised that his hour of reckoning had come when DSP Merrill Lynch refused to play ball with him. Sources say that Raju, before declaring the real state of affairs through his letter to Satyam board members, reportedly called a meeting of some of his community members and is believed to have asked them for advice.
He is also believed to have confessed that there was no cash on his books and the noose was tightening around him. Even the media knows what has happened and so does everybody else, he said. Sources close to the Rajus say that the community members were aghast on hearing what had happened and many of them were clearly upset. Some of them were openly critical of Ramalinga’s family. But, apparently, at the end of a heated meeting, community members promised to stand behind Ramalinga and pledged a huge sum for the legal battle.
Satyam was clearly the focus of all speculative action on the stock markets on Friday, before the bourses recessed for the weekend. Rumours about who could be buying into the stock flew thick and fast as 30 crore of Satyam shares changed hands. Since most institutional investors had dumped Satyam shares over the past two trading sessions, market players were eager to know who bought those shares. Although a definite answer to this is possible only after the settlements are completed next week, the rumours persisted.
On Friday, Satyam’s stock on the NSE touched an all-time low of Rs 6. 30 and closed at Rs 23. 75, down over 40% on the day. Of the 30 crore shares traded, about 8 crore shares, or about 12% of the company’s total shareholding, were marked for delivery. While market players speculated if construction major L&T was buying additional shares of the troubled IT major, names of two other corporate houses one based in Mumbai with interests in telecom, financial services, power & infrastructure and entertainment, and the other in Kolkata were doing the rounds.
Market players were, however, divided if any corporate house would touch Satyam now. For some, the main deterrents are the imminent legal cases in India as well as the US class action lawsuits against Satyam and its directors, head of a domestic financial services company said. ” Probably corporates would look at buying only parts of the company’s businesses but not the whole of the company. Taking over the whole of the company could also mean taking on its now undefinable liabilities” the company official said.
However, with Satyam’s stock price at sub-Rs 25 level and the company valued at about Rs 1, 600 crore, there could be some bravehearts, including seasoned speculators and arbitrageurs to bet on a turnaround, the head of institutional services at a local brokerage said. ” If the day’s low was Rs 6. 30, the average price for some could be in the Rs 10-15 region. At that level you could always find someone willing to take a bet on a definitive turnaround in the company and hence multiple profits,” said the official.
Another head of a local brokerage with substantial presence in the retail broking space also confirmed that some of the company’s clients were buying into the counter. If past instances are anything to go by, then such speculative activity is possible. In 2004, when RBI announced the merger of hugely mismanaged Global Trust Bank with PSU major Oriental Bank of Commerce, the stock price of GTB had fallen to as low as 78 paise. At that time, it was almost clear that GTB shareholders will not get anything from the takeover by OBC.
When the board of Satyam had met to discuss the acquisition of Maytas Infra and Maytas Property on December 16 (Tuesday), four senior managers of the IT company played a major role in convincing the board of directors about the deal. These managers were the CFO Srinivas Vadlamani, who is now in police custody along with the Raju brothers, wholetime director Ram Mynampati who is now in the US to convince clients not to walk away from Satyam, Srinivasu Satti, head of mergers & acquisitions and company secretary and corporate governance chief G Jayaraman.
The Raju brothers excused themselves from the meeting, saying that they were “ interested parties”. Senior managers from both Mytas Infra and Mytas Properties also came into the meeting to provide their take on the proposed merger. This included Ramalinga Raju’s son Teja Raju. A close reading of the minutes of the meeting that could not be ratified by the board members because the board was disbanded before it could meet again indicates that some directors raised minor questions about the proposal but left it at that.
At no point did any director ask why only Maytas was considered for acquisition and not any other infrastructure or real estate company. Of the three managers, not suprisingly it was Vadlamani who played the major role in pitching for the deal before the board. As per the draft minutes, it was he who mentioned that Ernst & Young had done an evaluation for Maytas Properties, putting its value at Rs 6, 523 crore. Vadlamani further stated that that the title due diligence had been done by Luthra and Luthra, a Delhi based law firm.
He added: “ Maytas Prpoerties has a land bank of 6, 800 acres and can construct 245 million square feet. This is almost one third of DLF’s properties but the valuation considered is one tenth of DLF valuation,” Vadlamani said hinting how Satyam shareholders would get Maytas so cheaply. Mangalam Srinivasan, on the board of Satyam since 1992 and the first director to quit on the aftermath of this meeting, enquired about the reasons both internal and external for the proposal and its timing.
She also wanted the board to be involved in the process from the very beginning to “ avoid the impression that the board is used as rubber stamp to affirm the consequent or decisions already reached. ” But she was apparently satisfied with the explanation by Mynamapati about how the IT market, especially in the US was going down and therefore derisking would be a sound strategy. Rammohan Rao asked about dilution of core competency as a result of this move but was satisfied with the explanation offered that the core IT business would not be impacted.
Even as Vinod Dham on audio link from the US asserted that it was important to demonstrate that the acquisition would benefit the shareholders because it was a related party transaction two other directors were quite supportive of the deal. V S Raju and T R Prasad said that considering the existing market price, the pricing for the public was generous. This comment came after Vadlamani mentioned that the price of Rs 525 per share would be offered to Maytas Infra shareholders in an open offer compared to Rs 475 per share to the promoters.
T R Prasad, the former cabinet secretary pitched in: “ Indian economy is growth oriented and infra is clearly seen as a definitive growth story. ” Krishna Palepu, who was probably the only director who realised that investors could object to the deal, said that in view of both unrelated diversification and related party transactions there was need to make” same compelling presentation to the investors” that it had to the board. Significantly the CEO of Maytas Properties K Thiagrajan who was called for the meeting said that his company had not leveraged private equity despite a huge land bank.
This runs in the face of his statements in the press last year that Maytas Properties was getting an infusion of Rs 600 crore from Infinite Indian Investment Company in a deal that also involved taking up a small equity. 110 acres of the land bank of 6800 acres is mortgaged with banks/financial institutions, it came out at the same meet. That answer had satisfied curious newshounds, but with the benefit of hindsight now it seems that the chief financial officer (CFO) of Satyam knew exactly what he was doing.
Hands in gloves with the Rajus in defrauding the IT company he had an inkling that the bubble could burst and hence the hurry to sell off. Incidentally, Ram Mynamapati, the new interim CEO of Satyam also sold off shares of Satyam during the time. On Thursday, Vadlamani put in his papers and on Friday morning there were strong rumours that he had attempted to take his life. Whether this is true or not, Vadlamani has been on the run for the last few days. “ He is not staying at his own house for security reasons,” a friend of his confirmed.
Interestingly, these stories about suicide have surfaced the day that Sebi officials along with sleuths of the Serious Fraud Office have landed in Hyderabad to investigate the books of Satyam. Now, potentially liable to be charged for insider trading amongst other things, Vadlamani had become enormously rich in his long tenure at the company. His colleagues aver that he — like his boss Raju — also believed that real estate was a great investment idea. Little wonder then, that he put in a lot of money into the business and if stories have to be believed he also has a stake in a real estate venture in Dubai too. Valdamani followed his boss and would invest in Hyderabad realty close to where Raju would or where Maytas would buy up land. He knew these places would surely grow,” says an insider. [pic] Satyam Computer Services CFO Valdamani Srinivas on Monday blamed the firm’s statutory auditors Pricewaterhouse Coopers and the disgraced founder of Satyam B Ramalinga Raju for perpetrating the Rs 7, 000 crore financial fraud. In his confessional statement to the police, Srinivas said the auditors never pointed out any “ deficiencies” during their discussions.
But the most startling revelation was that fixed deposits were unreal and fictitious which were managed with an understanding between the audit section and management. “ The bank deposits were handled directly by Raju and I was specifically asked not to look into it”, Srinivas said. This was corroborated in Raju’s confessional statement which said “ myself and my brother used to take decisions and instruct our CFO to do as instructed”. He admitted that the accounts were manipulated about seven years. His confession is perhaps a pointer to the fact that the promoters could have forged bank documents to show fictitious deposits.
This puts a question on the possible involvement of banks in the scam. Those who should have a pretty clear idea by now are the software company’s main bankers — ICICI Bank, Bank of Baroda, BNP Paribas, Citibank, HDFC Bank and HSBC. In the normal course, Satyam’s statutory Auditor Pricewater houseCoopers would have demanded certificates from banks attesting to the existence of money in the IT firm’s accounts. Did the banks indeed certify that they had the money? Or were certificates forged and presented to PricewaterhouseCoopers? Srinivas has pointed fingers at his assistant Rama
Krishna who has been working him for about ten years. “ Prior to quarterly board meetings Ramakrishna will prepare balance sheet with the assistance of his team with internal employees. I do not pay much attention to the details of that balance sheet. On his part, Raju said “ we wanted to show more income in the account to avoid others from involving in the company affairs and any other possible hostile takeover situation, and hence, manipulated the balance sheet to attract more business and show unavailable amount as available cash in hand”, said Raju.
The police confession comes four days after Raju claimed that the account books of the software company were manipulated to make it look much bigger than it actually was. Raju, whose son runs Maytas Infra, said sales, profit and cash balances were inflated and that he had pledged his shares to raise some Rs 1, 230 crore and keep the company running. Raju, his younger brother B Rama Raju and V Srinivas are now under judicial custody at the Chanchalguda jail in Hyderabad. The hearing on their bail application was deferred till January 16.
Multiple agencies including the market regulator Sebi and the Serious Fraud Investigation Office (SFIO) are scrutinizing the books of the scam-tainted firm. The Sebi team today sought the court’s permission to question Raju. The fact now is that Satyam has almost no cash in either it current or deposit accounts with banks. So the questions being raised are whether the money diverted into companies connected possibly with the Raju family. Were the deposits with banks used as security to enable loans for entities controlled by the Rajus? nformal pitch before the meeting commenced, to take what is known in the corporate world as a ‘ poison pill’. His suggestion was that Satyam should enter sectors where IBM and their likes would have no interest, to deter hostile takeovers. Subsequently, the board was given presentations on Maytas Infra and Maytas Properties with the valuation, an issue on which some members wanted more clarity and adhere to certain basic parameters before going ahead with the deal though agreeing for it in principle.
According to the member, 75 per cent of the funding for the Maytas deal would have come from internal accruals and the remaining from borrowings. He said the company’s auditors had told him that they themselves had physically verified from the banks the deposits in the company’s accounts. There was Rs 3, 319 crore in about nine banks, he added. After the deal failed to go through, Raju had told the board while announcing his resignation that “ as the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover thereby exposing the gap (between real and fictitious assets). It was like riding a tiger not knowing how to get off without being eaten. ” [pic] Although Ramalinga Raju has gone out of his way to make out that none of the other board members and senior executives of Satyam were aware of the fraud, the law of the land is expected to take its course and Raju and any other director/executive found to be involved in the scam are liable to be prosecuted on charges punishable with imprisonment up to 10 years. Some of the more serious penalties that Raju and others are likely to face under various laws are: Section 23 of the securities contract regulation Act 1956, that imposes a penalty of imprisonment up to 10 years and fine up to Rs 25 crore. The adjudicating officer of Sebi is empowered to award such punishment to directors and management executives for violating the listing agreement by making false and inaccurate disclosures in the company’s quarterly and annual results. The penalty is severe because of the enormous damage that the investors are liable to suffer on account of false disclosures. Section 24 of the Sebi Act 1992 that imposes a penalty of imprisonment up to one year for infringement of any provisions of the law or rules and regulations, including fraudulent and unfair trade practices (FUTP). * Section 477-A of the Indian Penal Code, that imposes a penalty of imprisonment up to seven years. The police may on their own or on the recommendation of the serious fraud investigation office (SFIO) invoke this IPC provision meant to punish those found to have falsified accounts “ wilfully and with intent to defraud. ” * Section 211 of the Companies Act that imposes a penalty of imprisonment up to six months.
The company law board is empowered to punish those who are found to have “ wilfully” failed to comply with the requirements of law relating to the annual financial statement. Significantly, the job of the prosecuting agencies has been made easier by the damaging admissions made by Raju in his resignation letter to the board. Having taken responsibility for cooking the Satyam books to the tune of Rs 7, 136 crore, it is just as well that Raju said, “ I am now prepared to subject myself to the laws of the land and face the consequences thereof. ” For all his exertions in his resignation letter to save the skin of other directors, hey have reason to worry because the Companies Act does not only hold the board to account for any such failure of due diligence, it also makes no distinction in the liability of executive and non-executive or independent directors. The onus is on them to prove the action they had taken to discharge their fiduciary responsibility. Beleaguered Satyam on Thursday embarked on a major damage control exercise to pull itself from the brink, pushed to by founder Ramalinga Raju, saying arranging liquidity, assuaging fears of 53, 000 employees and continuing the existing business would be its top priority.
Not ruling out initiating action against Raju or the auditors PwC for its complicity in fudging of accounts, the acting CEO Ram Mynampati said every possible action would be considered against Raju, who quit as chairman after making startling revelations on corporate India’s biggest fraud entailing about Rs. 7, 800 crore. Aimed at preventing panic exodus of highly talented workforce and top management, the interim CEO said that the December’08 salaries has been paid and the management would be focusing on arranging funds, which at the present juncture was a cause for concern. We do not rule out recommending action against Ramalinga. Many actions are possible for Satyam’s future,” he said, adding that the company was not aware of his whereabouts amid reports that the disgraced founder of the country’s fourth largest IT Company had left for the US yesterday before the news of his resignation and disclosure became public. On the auditor PriceWaterhouseCoopers who have been authenticating year after year the company’s accounts, which Raju admitted to fudging by inflating profits and creating fictitious assets, Mynampati said: “ We have not verified what process PwC took to certify financial statement.
We are not yet in touch with PwC. ” In the middle of the press conference held by the interim management at Satyam’s headquarters here, CFO Valdamani Srinivas, who is the financial custodian of the company, sent in his resignation but Mynampati said the Board would decide on it on January 10 and anyway he has to serve notice period. Interim CEO Ram Mynampati declared that the liquidity and cash-in-hand were not encouraging, although the company managed to pay salaries for December month. “ Some outstanding payment to vendors is yet to be made… e are verifying the liquidity and balance sheet… we have to raise liquidity in near term and are confident of raising it,” said Mynampati, while adding that his appointment was legal. On the financial irregularities disclosed by former Satyam Chairman Ramalinga Raju, Mynampati said the team was not yet in a position to answer these issues, as it is still ascertaining disclosures made by Ramalinga Raju and trying to correct financial irregularities. He said the regulatory bodies have already started their inspection and a team of market regulator SEBI was in Satyam talking to associates.
He said the company has started to actively reach out to customers globally and has been heartened to receive strong expressions of confidence and Readers react support from them. “ Our top 100 clients account for 80 per cent of Satyam’s revenues,” he said, adding that the top priority would be to clear pending contracts and continue with the business as usual. The company founded by Ramalinga Raju in 1987 received its worst shock yesterday when he disclosed what has now become the country’s biggest corporate fraud involving about Rs 7, 800 crore.
Satyam is in the process of finding new investment banker as soon as possible to pursue strategic options left with the company and also expand the Board, which is now left with only three members including Mynampati. Shareholders would be consulted on whatever options there are before the company, he said to a question on whether the company would explore merging or being taken over. The skeletons just won’t stop tumbling out of Satyam’s cupboard. It now turns out that B Ramalinga Raju and his associates may have spirited away bank statements of the company that hold clues to the massive fraud perpetrated by them.
The Hyderabad office of Registrar of Companies did not find the statements at any of the three Satyam offices in and around the city raided in the morning. The offices have since been sealed. Companies have to keep bank statements for the current and preceding years at registered offices. It is suspected that the files vanished as they would have given away the fraud, rendering Raju and his accomplices liable for immediate penal action. The ROC is likely to recommend a comprehensive investigation by the Serious Fraud Investigation Office (SFIO), which may be accepted as early as next week.
There is already enough evidence to make a foolproof case for an SFIO probe, sources in the corporate affairs ministry said. Investigators have already found enough evidence to make a foolproof case for an SFIO probe, sources in the corporate affairs ministry said. The Registrar of Companies (ROC), in its report, is also likely to point out that the company violated the requirement under the rules to keep the statutory documents at the headquarters. As the investigation against Satyam gathers momentum, the Institute of Chartered Accountants of India has initiated disciplinary proceedings against the company’s auditor, PriceWaterhouse.
Sources said the SFIO team would be multi-disciplinary, drawn from Sebi, RBI, CBI, police, customs, revenue intelligence, besides forensic and banking experts. The new, high-profile board of Satyam met on Saturday and deliberated for a marathon seven hours. But the new members could not elect a chairman. However, the board did elect T N Manoharan, former head of the Institute of Chartered Accountants of India, as chairman of a three-member crucial audit committee that is expected to unravel the murky financial details of the scam-ridden company.
The need to scour the top corporate roll call for a chairman comes in the wake of senior board member Deepak Parekh’s announcement last week that the new board will elect a chairman once more members are appointed. Even minister for corporate affairs, PC Gupta earlier said that the board will elect the chairman. A Satyam statement issued after the meeting said: “ Till such time a chairman is appointed by the Central Government (in line with the directions of the Company Law Board), it was decided that one of the members of the board will chair the meeting, by rotation. Today’s meeting was chaired by Deepak Parekh. Analysts see this as an outcome of differences of background between the board members. “ How could a company board have a chairman on a weekly basis, especially in these times when Satyam board needs to provide strong leadership and continuity? ” wondered an analyst. Meanwhile, even as the board confirmed that the search for the CEO and CFO continued, it decided that till such time these appointments are concluded, the board will meet weekly. The business leaders made a detailed presentation to the board and they have been requested to lead their respective operations, seamlessly.
While this is so, analysts say government ‘ interference’ is evident from minister Gupta’s reported statement that the CEO and CFO should be insiders. The crucial Audit Committee chaired by Manoharan will have C Achuthan, former member of Securities and Exchanges Board of India and the Securities Appellate Tribunal, and S B Mainak, as members. The board also appointed Chennai-based M/s Brahmayya & Co. , Chartered Accountants, as internal auditors of the company with immediate effect. Amarchand & Mangaldas & Suresh A. Shroff & Co. were named legal advisors to the board.
The company statement also said board members had reiterated that they were in touch with key customers and so far have not heard of deliveries being affected in any way. It reaffirmed its confidence in its employees. Senior managers of beleaguered software major Satyam Computer Services Limited are in a fix as their efforts to retain the company’s customer base have been seriously affected, owing to lack of Forex, air travel, visas and carry world money (CWM) cards. “ We are hoping that the new board members will revive the company,” a senior company officer told TOI. However, our task is becoming more difficult with each passing day. We are unable to cater to customer demands from onsite projects (ongoing projects abroad) for want of visas, air tickets, Forex and CWM cards. ” He said that none of the company’s branch offices in India uses cash transactions to book air tickets or for Forex (foreign currency). Annual contracts with Forex dealers and travel vendors are carried out by the company’s head office, which settles these bills after the travel proposal s sanctioned by the project heads at various branches. “ Hitherto, no one refused to supply Forex or book air tickets once I mailed them the order. However, since last week, our contractors have stopped giving us credit and are demanding previous dues. I have not been able to send a single person onsite and all those who are onsite, are stranded,” the officer said. The same is the case with vendors appointed to get the visas processed from the consulates. “ The vendors have simply refused to process our papers and get the visas stamped,” he said.
Another officer pointed out that several scheduled trips, which were critical for onsite work, have been postponed indefinitely. “ Clients are mailing us every day asking when the new manpower will be sent and we are unable to answer them,” he said. The problem is further compounded with onsite manpower running out of cash. Every employee sent abroad for onsite projects is provided with a CWM (carry world money) card. The company puts the money in the card account from India and the employees are able to withdraw the same onsite to pay for lodging, travel and hotel bills and other office work-related expenses. CWM cards are getting depleted. Onsite salaries, which are made every fortnight, have still to be disbursed. The employees are worried as not all have reserves,” the officer said. “ It has become impossible for them to focus on the project and satisfy the demands of the clients. ” He said that the issue has been brought to the notice of the “ existing top brass” and they have promised that they will deal with it. “ They have been promising to take action for the last one week and the clients are getting agitated,” said the officer. The issue is not just about the non-payment of salaries, the possible attrition or about the competition poaching our clients. The liquidity crunch affecting critical air travel and transactions of Forex and CWM cards will alone ruin our onsite customer base,” he added. Amid rumours of Satyam Computer Services informing staff of a freeze on salaries for two months, employees denied having received any internal mail on the matter. Three employees that ET spoke to said the Satyam top management had not circulated any mail among staff on a freeze on pay for two months, as reported by a news agency on Friday.
A Satyam spokesman denied sending out such a mail to staff. Employees say the senior management has, in fact, assured them of new business as well as support from existing clients. “ We were told today that Satyam has won new contracts from Malaysian Airlines and Indian Railways. The senior executives also said that some clients have offered cash as advance payments to see Satyam through its current cash crunch,” said an employee, on the condition of anonymity.
The Satyam spokesman denied that the company had assured employees about advance payments from clients. Earlier, an agency had reported that Satyam would be holding back employees salaries for two months, even as rumours were rife that the company might lay off close to 15, 000 workers in the coming days. On Thursday, Satyam’s interim CEO Ram Mynampati had said that the IT services firm had paid salaries for December but didn’t have enough cash to pay staff for the month of January.
With preliminary indications pointing to the startling fact that the profits of Satyam Computer Services were diverted to fund the entire activities of Maytas Infra, including buying land within the state and elsewhere in the country, the Andhra Pradesh government has decided to seek a CBI enquiry into the fraud committed by B Ramalinga Raju. “ The trail is complex and multi-faceted. There are indications of hawala transactions amounting to crores of rupees. To run through the maze and establish the crimes, what is called ‘ forensic auditing’ is required. And only the CBI can do that.
Therefore, we have decided to seek a CBI enquiry into the fraud which is assuming gargantuan proportions now,” a top official told TOI. Set up in 1988, Maytas Infra has in the last two decades bagged massive projects all across India in constructing ports, airports, roads, expressways, highways, buildings and industrial structures, irrigation canals and dams and thermal and hydel power projects. “ We are seeking a CBI enquiry into the Satyam scam as it appears that all the money invested in Matyas belongs to Satyam,” the official said. But what may turn embarrassing for the state is that the same Maytas is involved in several projects in the tate. These include the Rs 12, 600-crore Hyderabad Metro Rail project, the Rs 1, 590-crore Machilipatnam Port and over Rs 12, 000 crore in the irrigation sector. “ While the state can claim ignorance as to how Maytas raised its funds, all these projects are doomed if the CBI steps into the picture,” many analysts wondered. The request for CBI enquiry will, in all likelihood, be made on Monday, state government sources said. Well equipped in unearthing hawala transactions and complex funding routes with the help of ‘ forensic auditing’ the CBI would is the best agency to unravel the crime, the sources added.
Satyam may be tottering but the government’s decision to dissolve the disgraced board-led by B Ramalinga Raju and replace it with its own has set off a scramble for a seat in the boardroom of the IT major. As names of potential picks are bruited about amid discreet lobbying by interested individuals, the Andhra Pradesh government joined Life Insurance Corporation, ICICI Prudential, as well as the FII, US’s Lazard Asset Management, for berths on the new board of Satyam. There was also a not-so-subtle lobbying by individuals to join what is going to be the most talked about board of any company in a long time.
As officials in the ministries of corporate affairs, finance and law as well as those in the PMO ran checks on the names on the short list, conflict of interest consideration ruled out M Damodaran. The former SEBI chief is on the board of an IT concern, Tech Mahendra. Former chief of NASSCOM, Kiran Karnik, also did not find favour for the same reason. The criterion is sure to work against other IT biggies whose names began floating after corporate affairs minister Prem Chand Gupta announced the scrapping of the Satyam board.
While the claims of institutions made sense in the light of the concern for their investments in the company, the flurry of interest from individuals — as distinct from those whom the government was reaching out to — was seen as pointing to the confidence that the company was not beyond salvage. It also reinforced the doubts that the profit margins of the company were not as low as claimed by Ramalinga Raju in his Mea Culpa which increasingly appears to have been designed as an alibi. RBI’s move to seek the details of Satyam’s accounts with different banks reflected the same suspicion.
With the government entering the frame and the room for pilferage plugged, there was a real opportunity to get associated with the widely observed turnaround story: a strong incentive. The chief secretary of Andhra Pradesh backed up the state’s claim by arguing that the future of the company will be of special concern for the state once used as the advertisement for its IT prowess. A senior official in the chief minister’s office said that as the company is based in Hyderabad and a large number of investors and employees are from the state, the government needs to have a say in the management.
Life Insurance Corporation and ICICI Prudential pointed to their substantial stakes in Satyam. K T Thomas, managing director of LIC which has a 4. 34% stake in the beleaguered Satyam, said “ We are concerned”, though he refused to confirm that the company has already asked for a seat in the Satyam boardroom. Sources confirmed that ICICI Prudential, with a 2. 7% stake, also wants to be heard in the selection of the board. Foreign institutional investor, Lazard, which holds over 6% stake in the company, has written a letter to the ministry of corporate affairs that it should also be heard in the selection of the directors.
Lazard International lawyer Hitesh Jain said, “ We would like the government to consult us for the appointment of the member to the board. ” Prem Chand Gupta confirmed that he had received a representation from Lazard. Though he refused to spell out the government’s stance, sources pointed out that Lazard, being an FII, cannot be given a seat on the board. The Central government on Sunday appointed three independent directors on the board the beleaguered Satyam Computer.
The new independent directors are HDFC chairman Deepak Parekh, former Nasscom chairman Kiran Karnik and former Sebi member C Achutan, company affairs minister Premchand Gupta told reporters. “ The board is expected to be convened immediately to decide the further course of action,” Gupta said when asked if more people will be appointed to the company’s board and if the government was considering a financial bailout package to meet the salary expenses of the company. “ We will meet tomorrow at Hyderabad,” HDFC Chairman Deepak Parekh told PTI.
Asked whether he would head the board, Parekh said, “ Decision to this effect will be taken tomorrow when the board meets for the first time. ” The board can be expanded to include seven more directors. The chairman of the company will be decided by the new board. Gupta said that the board’s first priority would be to restore the company’s credibility, customer confidence and employee morale apart from safeguarding the interests of investors and other stakeholders. On demands made by institutional investors’ positions on Satyam’s board, he was non-committal. “ All options are open. Whatever is in the interest of the company will be done. PTI reported that suitors for troubled Satyam Computers may keep away, as the government clarified that selling the company was not the mandate of the newly appointed board of the IT major. “ That is not the mandate of the (three-member) board,” corporate affairs minister Prem Chand Gupta told reporters today when asked whether there was a possibility of a buyout of the beleaguered IT major whose board has been superseded by the government. The government on Friday disbanded the board of Satyam days after its founder B Ramalinga Raju admitted to a Rs 7, 800-crore fraud in the books of the IT company.
Meanwhile, Satyam Computer Services on Sunday welcomed the reconstitution of the board, with the spokesperson saying, “ This is a vital stabilising development for Satyam”. In their first joint press conference after being appointed on board the beleaguered Satyam, the three independent board members Deepak Parekh, K Karnik and C Achutan said that the board will try to its best to help the company tide over the crisis. Board member Deepak Parekh informed media that government may provide temporary liquidity to Satyam to overcome crisis. Parekh said, “ Government will appoint new board members soon and chairman will elected by the full board.
A new independent accounting firm will also be appointed. ” Calling Satyam fiasco “ a big challenge”, Parekh said board will try its best to retain prized clients of Satyam. According to PTI, after taking preliminary stock of the company that has been hit hard by the Rs 7, 800-crore scam, the reconstituted board met for the first time on Monday and discussed various options to handle the immediate issues, including liquidity. Parekh said that the working capital issue needed an immediate attention, but it has not yet determined in the amount of the liquidity needed.
An independent auditing firm would be appointed within 48 hours, he said, while talking to reporters along with two other board members Kiran Karnik and C Achuthan. Parekh said that there was a need to appoint new CEO and Chief Financial Officer for the company, while adding that “ we have no candidates in mind” and no one was willing to join within 24 hours. “ The top priority is to restore the confidence of customers, employees, suppliers and investors… Satyam has a lot of marquee customers, so the sustainability of service is a priority,” he said.
Asked if merger could be considered to overcome the crisis, Parekh said, “ The option of merger is always open. ” PTI report says that another member C Achuthan said that the board has not sought any immunity from lawsuits as such for the company. Asked if PwC would be sued, Parekh said investigations were going on and it was too premature to comment on the issue. Parekh said that the board was talking to two entities for selecting the new independent accounting firm for Satyam, but declined to reveal their names. The Satyam saga gets murkier.
Now it has come to light that its auditor, Pricewaterhouse, furnished the company with a “ wrong” PAN. Confirming this Institute of Chartered Accountants of India (ICAI) has said it would take “ disciplinary action” against the auditors and may even consider cancelling its licence. On Thursday, TOI mailed ICAI vice chairman Uttam Prakash Agarwal balance sheets of Satyam Computers that quoted PwC Hyderabad’s PAN. Agarwal is heading the high power committee set up by ICAI to probe into the Satyam fiasco. As it turned out, the PAN was that of PwC Bangalore. PwC Hyderabad technically comes under PwC New Delhi.
As per ICAI records and website, PwC Jubilee Hills office is listed under New Delhi ‘ Northern Region’, with the firm registration number given as ‘ 012754N’. The PAN reflected in Form 23 AC (used for filling a company’s balance sheet and other documents with the Registrar) of Satyam Computers is that of PwC, Bangalore. After going through the documents, Uttam Prakash Agarwal told TOI, “ The PAN (on the balance sheets of Satyam is wrong and our disciplinary committee is now working on it. Since a case is already been filed against PwC, we can’t file a fresh case. But this (the documents) makes our case stronger.
Depending on the extent of error, we shall decide upon a punishment, with the maximum being cancellation of PwC’s licence. ” But PwC’s woes do not end here. Agarwal says ICAI will also issue notices to S Gopalakrishnan, Talluri Srinivas and Ramakrishna P for signing as PwC partners when they technically are partners with Lovelock & Lewes. PwC had acquired Lovelock & Lewes a decade ago. Though PwC became the public face of Lovelock & Lewes and those who work for the latter are considered as employees of PwC, it technically is a ‘ PwC network firm in India’ and has a separate PAN. As Lovelock & Lewes partners, the three cannot sign anything on behalf of PwC. Following their reports, notices will be issued to these people,” Agarwal said. Agarwal’s statement comes even as chartered accountants in Hyderabad are planning to go to town with similar allegations against the global auditing firm. Sunil Appaji, a senior CA from Hyderabad has written to ICAI saying Hyderabad is a branch of PwC, New Delhi. “ When PWC Bangalore has nothing to do with PwC, Hyderabad, then how can the PAN be that of Bangalore and that too when the address stated below is that of Hyderabad.
This means that the form was filled in the name of a bogus company,” says Appaji. The buzz that Vivek Paul, the former vice chairman of Wipro, might be a potential CEO candidate for the troubled Satyam Computers is getting louder by the day. When contacted by TOI, Paul remained noncommittal without denying the possibility outright. Asked specifically on whether he would be interested in an engagement with Satyam, he reply was a cryptic, “ No comments. ” When pressed on what he intends to do, now that he has quit private equity (PE) firm TPG, he said, “ I haven’t really decided anything. He wouldn’t be drawn further on his plans with Satyam or otherwise. Paul’s name has cropped up ever since Satyam’s troubles started making headlines in December. His quitting TPG in late December has added grist to the rumour mill. The other name being bandied about is Jerry Rao’s, the former head of Mphasis Ltd, which was acquired by EDS. It is unclear at this moment whether Paul has made the short list of CEO candidates being looked at by the new, government appointed board of Satyam. The board has announced that a CEO and CFO search is on.
Also in the realm of conjecture is the possibility of Paul fronting a PE led bid for Satyam. Paul was vice chairman of Wipro between 1999-2005. At Wipro where he was CEO of Wipro Technologies — the IT services arm of the company — he is credited with building the business from a $150 million organization to a $1. 4 billion major. He regularly made the list of most influential and respected CEOs put out by international publications during his Wipro stint. On quitting Wipro in mid-2005, he joined TPG.
There has been much speculation after the Satyam debacle that a credible IT industry veteran like Paul might be offered the top job to help the company get back to its feet. While it is widely believed that Satyam needs an industry veteran to steer it through these turbulent times, getting someone already working in the industry has proved to be non-starter because of ‘ conflict of interest’, issues. Hence the search, at least in the public domain, has veered towards those who had successful IT careers and then had moved on to different assignments like Paul.
The new Satyam CEO will have perhaps the most challenging job in corporate India. With investor and customer confidence in the company low and employee morale abysmal, resurrecting the country’s fourth largest IT services firm will be a Himalayan task. Market sources say customers are fleeing the company in droves. Good people in the company are likely to take flight if a decent alternate were to be available. Finding value in this mess is like finding gold in dross, said an industry source. Before joining Wipro, Paul was with General Electric.
He handled various assignments at the company including as president & CEO of the Bangalore based Wipro-GE Medical systems. Prior to the GE stint he had worked with PepsiCo and Bain & Co. A management graduate from University of Massachusetts; he has an engineering degree from BITS Pilani. A chartered accountant, 47-year old Mr Roy did his master s degree in management from London Business School’s Sloan Program during 1999-2000, and completed his Chartered Accountancy from the Institute of Chartered Accountants of India (ICAI) during 1980 to 1985.
A person familiar with the options being considered by the Satyam board told ET on conditions of anonymity that the new board is keen to appoint a chief executive and CFO at the same time, to help the new management have a better relationship. The Board confirmed that the search for the CEO and CFO continues and that till such time these appointments are concluded, the Board will continue to meet on a weekly basis, to address ongoing issues, Satyam said in a statement on Saturday. Mr Roy also brings expertise in private equity and corporate finance, something Satyam badly needs, a industry source said requesting anonymity.
He had a reputation for governance championing, and he in fact influenced board s thinking in this context at Polaris. Mr Roy, who also served as director strategic alliances at Lucent Technologies, managed business operations, outsourcing relationships and transnational M&A deals at the telecom firm. Apart from Lucent, he has worked in senior positions at Xerox, BT and Digital. Prabal is looked upon as somebody who played an instrumental role in establishing corporate governance framework at Polaris, and his expertise will help Satyam immensely, said a senior executive at a top Indian tech firm who requested anonymity.
During late nineties, Mr Roy also served as the finance director, Asia pacific for Eveready Batteries. On a day when Andhra Pradesh chief minister Y S Rajasekhara Reddy denied in New Delhi that his state government had accorded any political patronage to the disgraced former chairman of Satyam, B Ramalinga Raju, a government order (GO) has revealed that 50 acres of land were allotted to Satyam in Visakhapatnam for developing an IT SEZ on the specific “ instructions of the honourable CM”.
Talking to media in New Delhi, Reddy on Monday strongly denied having helped Raju. He also rebutted the charge that his government had helped Maytas acquire land worth Rs 7, 000 crore or corner contracts, claiming that the state had a transparent and foolproof system of contract bidding. He said Satyam had got land and contracts because of its competitive bids. However, GO 1439, issued on December 4, 2008, just a month before the Satyam scam surfaced, openly admits to many violations to favour Raju.
While the Vishakapatnam collector had reported the basic value of the land to be Rs 60 lakh to Rs 80 lakh per acre and the auction value being at Rs 4 crore to Rs 4. 5 crore per acre, the land was allotted to Satyam at Rs 10 lakh per acre, thus causing a loss of at least Rs 195 crore to the state exchequer. Not just that, of the 50 acres, 25 acres were taken away from the police who had wanted to construct a Greyhounds commando training centre, and another 25 acres of prime land were taken from the Visakhapatnam Urban Development Authority (VUDA) for allowing Satyam to develop the IT SEZ.
After a meeting chaired by the chief minister, the state government had entered into an MoU with Satyam Computer Services on May 10, 2005, for allotment of 50 acres of land for the IT company for their software development centre at Thotlakonda Hills, Kapuluppada village in Bhimunipatnam mandal of Vishakapatnam district. At the rate of Rs 10 lakh an acre, Satyam paid the state Rs 5. 01 crore and the foundation stone was laid by the chief minister himself on May 11, 2005. The area was subsequently notified as an SEZ through a government order on June 1, 2007.
But before Satyam could take possession of the land, the district collector wrote to the state government stating that the 50 acres that had been given to Satyam were actually part of the 300 acres that the state had already allotted to the police department. It is in this context that another government order (GO 1439) was issued on December 4, 2008, withdrawing 25 acres from the allotted area of the police department, and another 25 acres was added from the adjoining urban development authority land and given to Satyam.
GO 1439 states, “ he (Vishakapatnam collector) has also reported that pursuant to the instructions of the honourable CM and keeping in view the urgency”, the land has been allotted to APIIC for onward allotment to Satyam. The GO also states that the state had no choice but to withdraw some of the land allotted to the police and also to take land from the urban development authority as “ there is no other suitable land in that locality for allotment to Satyam Computer Services Ltd”. Inexplicably, the GO states that all this was done to “ avoid further complications”.
While the state may now claim that it has cancelled the said allotment of 50 acres to Satyam, the fact is that it was originally allotted to the company on the specific instructions of the chief minister. In New Delhi, Reddy said that the government has promptly acted to bring the guilty to book. Denying the charge of patronising the Satyam promoter, he said that by the time he had taken over the reins of the state, Raju had already become very big. He said that the Satyam promoter had received phenomenal projection under his predecessor, TDP chief Chandrababu Naidu. That projection helped Raju in his business. ” B Ramalinga Raju, the founder and former head of Satyam Computer Services may have skimmed huge amounts of cash from the company, rather than padded its books as he claims, according to a report in the New York Times that cited a person involved in the Satyam investigation. Satyam has been battling for survival since Raju resigned as chairman earlier this month, revealing profits had been falsified for years and that $1 billion of cash on the books did not exist.
Investigators looking into the fraud have found a maze of about 300 companies related to Raju that were used to siphon as much as $1 billion in cash from Satyam, the report said, citing a senior official involved in the inquiry. The article said the picture emerging from the investigation of Satyam is very different from the one painted by Raju in a letter to Satyam’s board earlier this month. In the letter, Raju said about $1 billion of Satyam’s cash was “ non-existent” and that he had falsified its profits for years to avoid losing control of the company.
Raju said neither he nor his brother, B Rama Raju, who co-founded Satyam, “ took even one rupee/dollar from the company. ” The New York Times report, citing the person involved with the investigation, said the entire $1 billion Raju said was faked might have actually been earned by the company but then skimmed from it. A spokesman for Satyam declined to comment on the report. The report said Raju’s lawyer did not return calls seeking comment. At the same time he said the first information about Satyam is encouraging as the company’s liabilities were not much. Information ke hisaab se company ke upar bank aur institutions ki koi major liability nahi hai”. Asked about scores of suits filed in the US court against the company after it aborted Rs 8, 000-crore deal to acquire two Maytas firms promoted by the family of Raju and his subsequent confession of cooking of accounts, Gupta said it would not be proper for him to talk about the law suits. On a related query, Gupta said members of the newly- constituted board would not be held responsible for what was done by the previous board which was disbanded by the government after the Rs 7, 800-crore scam came to the light. The government had advised the new board to engage a legal firm for it and take legal opinions and all necessary steps in this direction,” he said. He said there were two issues in handling the Satyam crisis — the first being the company’s operations and the second relates to the regulatory system and investigation. On the operations front, Satyam is a good company with a big brand name and the government has teamed up experts from IT, administration, law, finance and accounts to salvage the company and leverage from its impressive list of clients.
Apart from that, the company also has trained manpower and assets along with receivables of Rs 1, 700 crore, the minister said, adding that if the company’s operations are disturbed then many stakeholders would face major loss. “ Satyam ke operations agar disturb hote hain to bahut logo ko nuksaan hoga. That is why, personally I feel that the operations of Satyam should be a different affair than the regulatory and investigation issue,” he added. He said inspection and investigation in the company should be carried on separately without disturbing the operations of the company. Regulatory work and fact finding of different things that agar paisa tha toh kaha gaya… yeh alag se chalta rahe… mere khayal se yahi strategy ziyada theek rahegi aisi situation mein”. “ It provides a great opportunity to look into the entire auditing regulatory set-up in India and whether there is proper compliance,” he said. So do we have the adequate auditing standards in place to be in line with the fast-changing corporate sector? There are more than 35 standards in force to help auditors do their job, some related specifically to detect frauds. “ We do not lack in standards.
India, in fact, is fast moving to benchmark with the internationally-recognised auditing standards of the International Auditing and Assurance Standards Board (IAASB). The problem lies in enforcement. It is more in letter than in spirit,” Chandiok said. He regrets the “ near lack of action” on the part of the regulator ICAI against erring audit firms has further emboldened the audit firms. Ashok Banerjee, who teaches financial accounting and corporate restructuring at IIM Kolkata, said ICAI should be pro-active in taking action against those found defaulting. Moreover, this should be transparent so that the message of a strict and vigilant enforcement mechanism goes to all,” he said. Among the various measures required to make the audit processes more vigilant, he suggested introduction of the concept of ‘ rotation of auditors’ in India. “ Rotation of auditors, which is there in a few countries, means compulsory change in an audit firm after a few years. This is important to reduce chances of collusion between auditors and company management due to a long-term engagement,” Banerjee said.
However, a former ICAI president, who does not want to be identified, said increasing regulations would not be good for the profession. “ You cannot regulate a profession by keeping laws for anticipating fraud. Fraud will be there as an exception and has to be strictly acted upon,” he said, adding that India requires some “ critical regulation and greater compliance”. Fraud-hit Satyam Computer said it expects auditors to take three weeks to discover the true state of the outsourcing giant’s finances, a company spokesman said on Monday.
The comments came after the New York Times quoted an unnamed investigator as saying Satyam founder B Ramalinga Raju pocketed huge amounts of cash from the company — rather than just padding its books as he has claimed. “ The accounts are getting tallied for where the anomalies are,” the Satyam spokesman told reporters. “ The auditors are doing this. ” “ It is going to take three weeks for a judgment (by the auditors) of how much has gone, and where it has gone,” the spokesman said.
India’s business community has been rocked by a statement from Raju earlier this month in which he declared he had created a fictitious cash balance of more than o