Serious frauds office gets three months to probe Satyam scam

Serious frauds office gets three months to probe Satyam scam
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First Published: Wed, Jan 14 2009. 12 47 AM IST

Blame game: Srinivas Vadlamani (right) said Price Waterhouse had never pointed out any deficiencies in Satyam’s accounts. Mahesh Kumar A. / AP
Blame game: Srinivas Vadlamani (right) said Price Waterhouse had never pointed out any deficiencies in Satyam’s accounts. Mahesh Kumar A. / AP
Updated: Wed, Jan 14 2009. 12 47 AM IST
Hyderabad/New Delhi: Investigations into the Rs7,136 crore accounting fraud at Satyam Computer Services Ltd moved a definitive step forward on Tuesday with the Union government entrusting the probe of India’s worst corporate governance scandal to the Serious Fraud Investigations Office, or SFIO.
The ministry of corporate affairs called in SFIO, giving it a three-month mandate to submit a report on its investigations. At the same time, the Institute of Chartered Accountants of India, or Icai, the body that regulates auditors and accountants, formed a six-member panel to identify “the root causes including the persons involved” in the fraud.
Blame game: Srinivas Vadlamani (right) said Price Waterhouse had never pointed out any deficiencies in Satyam’s accounts. Mahesh Kumar A. / AP
The ministry acted after receiving a report from the Registrar of Companies, or RoC, which had conducted a preliminary probe into the accounting fraud at Hyderabad-based Satyam. “We got the RoC report, the details of which we cannot reveal now, but we have asked SFIO to look into irregularities in the books of Satyam,” Gupta said.
Gupta called in SFIO, which probes intricate cases that cut across departments and disciplines, six days after Satyam founder B. Ramalinga Raju quit as chairman, confessing to having doctored the accounts of the company. The confession shocked India’s software industry and investors and plunged into uncertainty the future of 52,000 Satyam employees.
“It is a test case for SFIO,” said C.L. Bansal, who teaches corporate law at Management Development Institute in Gurgaon, near New Delhi. “It will send a message to all other companies...”
Raju, his brother and former managing director Rama Raju and chief financial officer Srinivas Vadlamani have been arrested and the board of Satyam disbanded and replaced with a three-member interim board of business professionals.
Also under scrutiny is the role of auditor Price Waterhouse, a unit of PricewaterhouseCoopers, one of the big four accounting firms globally. Price Waterhouse audited the books of Satyam, where more than Rs5,000 crore of cash and assets reported at the end of September doesn’t exist, according to Raju’s confession.
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“If there has been failure on the part of auditors, then concerned partners who signed off on audited documents of Satyam can be banned for lifetime under the provisions of current regulations,” Uttam Prakash Agarwal, chairman of the six-member committee formed by Icai, told Mint.
The committee also has a mandate to suggest changes in current regulations or legal provisions to prevent such incidents in the future. According to Agarwal, the committee, which has been given a deadline of 11 February, will submit such recommendations to the Union government, the Securities and Exchange Board of India, or Sebi, the capital market watchdog, and other regulators.
Icai has already sent a notice to the audit firm seeking relevant documents. Price Waterhouse has 21 days to comply with the notice. The committee has 30 days to submit its report to the central council of Icai.
Officers of the Andhra Pradesh Crime Investigation Department, or CID, meantime conducted searches at the Hyderabad offices of Price Waterhouse, a day after Vadlamani said the auditors had never pointed out any deficiencies in Satyam’s accounts.
According to a senior CID official, some documents have been seized from the auditor’s office in connection with the accounting fraud at Satyam. On Monday, Sebi officials had also visited the Price Waterhouse offices in Hyderabad to inspect records.
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The inspector general of police, crime investigation, V.S.K. Kaumudi, said, “Our teams are currently focusing search efforts on Price Waterhouse office and have already seized some records.”
Denying any ‘raids’ at its Hyderabad office, a spokesperson for the accounting firm said on Tuesday the firm was cooperating with various agencies.
“There is no raid at the Price Waterhouse Hyderabad office. We are in discussion with different agencies for providing information requested by them. We are fully cooperating with the agencies and providing whatever information/documents/materials that have been asked for,” the spokesperson said in a statement.
Meanwhile, some members of the Icai say that the action that can be taken against Price Waterhouse is limited.
A member of the Icai disciplinary committee who did not want to be identified, said, “the current provisions of Icai Act do not allow disciplinary action against accounting firms. Only individual chartered accountants and partners of the accounting firms under scanner would be penalized if found guilty.”
He added, “The maximum punishment that the Icai Act provides for is lifetime removal of membership of an accountant, which prohibits (the accountant) from practising the profession, apart from a maximum penalty of Rs5 lakh.”
Shares of Satyam fell 9.16%, or Rs3.15, to close at Rs31.25 on a day the Bombay Stock Exchange’s Sensex shed 0.42% to end at 9,071.
Bloomberg contributed to this story.
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First Published: Wed, Jan 14 2009. 12 47 AM IST