Satyam Scam and helpless Indian government!

By Sanchit on Friday, January 09, 2009

comments (1)

Filed Under:

When the Madoff fraud, one of the largest scams in Wall Street history, broke out, the US administration moved with lightning speed. Bernard L. Madoff, the founder of Bernard L. Madoff Investment Securities, accused of committing a $50 billion fraud on its clients, was arrested within hours of the scam unfolding on December 11, 2008 and later released on a $10 million bail. The assets of his investment firm were frozen the very next day. A federal court launched the prosecution proceedings forthwith and ordered liquidation of Madoff’s business. A receiver was appointed to manage the firm’s financial affairs. To protect the interests of cheated investors, the court directed the clients to seek relief under a federal statute created for the purpose. If convicted, Madoff could face up to 20 years in prison and a maximum fine of $5 million.

Look at the way India is dealing with its biggest corporate fraud committed by Satyam honcho Ramalinga Raju. He has simply gone underground after confessing himself to the Rs8,000 crore fraud. None knows about his whereabouts. And no attempt seems to be under way to trace him even two days after he dropped the bombshell. The Hyderabad police say they have no complaint to proceed against Raju. All that the Andhra Pradesh Chief Minister Rajasekhar Reddy did was to appeal for the intervention of the Prime Minister, who, in turn, responded to his Chief Minister’s plea with a stoic silence!

The government ’s response to the unfolding of the Satyam scam has been muted. It appeared to be totally clueless about what to do in the aftermath of the Satyam scam. The 52-year-old Companies Act doesn’t have any provisions that enable the government to take swift and effective action in cases of large scale fraud.

The Serious Fraud Investigating Office(sorry, I am hearing about this high-sounding office only now), to which the Satyam scam is being referred by the Government, says it could take up to a year or longer to complete the probe into the Satyam fraud. Well, Madoff must be envious of the freedom and immunity enjoyed by Raju even after committing the mother of all corporate crimes in India.

`Satyam’ in Sanskrit means `truth’ . `Satyameva Jayate’(Truth alone triumphs) is the national motto of India.In the case of Satyam Computers, it took seven long years for the truth to triumph. It is not yet clear if the discredited Satyam chief Ramalinga Raju has said the whole truth or only the half truth about the financial fraud in his statement to the board of directors.

It is not the Rajus alone who concealed the truth from shareholders. Prima facie, the auditors and the directors too were a party to the blatant suppression of truth.It is quite unlikely that internal auditors were not in the know of the financial wrongdoings perpetrated in Satyam for years. Can the auditors merely wash their hands of saying the book of accounts is a primary responsibility of the management and auditors merely audit the documents provided to them by the management. The auditors need to explain what process they adopted in authenticating the inflated profits and fictitious assets referred to by Raju. If Satyam’s auditor PwC is a willing accomplice in the scam, it is a shame on India’s chartered accounting profession as a whole.

How can it be that none of the board members, past or present, had any knowledge of the actual state of affairs in Satyam? Was the Company Secretary, who is supposed to act as an advisor to the board, too unaware of the developments? If he was aware, what advice did he give to the board?It is hard to believe that India’s fourth largest IT Company gave a complete goby to ethics, corporate governance and transparency by falsifying the company balance sheet, considered the most sacrosanct document of a corporate entity.

If 26/11 was the result of total failure of intelligence, Satyam fraud was in no less measure the result of the collapse of the corporate surveillance machinery. What were auditing regulators like the Institute of Chartered Accountants of India (ICAI) and the Institute of Company Secretaries of India (ICSI), as also the Ministry of Corporate Affairs, doing to bring about checks and balances in company auditing.

According to the Companies Act, auditors are to be appointed by shareholders at the companies’ AGM, but in most cases the shareholders are not even aware who their auditors are because they are appointed by the management. Most management is hesitant to share sufficient data with the investors so much so the investors don’t have a clear idea of the ground realities.

After the Satyam scam, the shareholders will tend to take the company balance sheets only with a large helping of salt.

Source: India Syndicate

Read full post >>