Hyderabad: Price Waterhouse auditors “intentionally” failed to apply certain audit standards to Satyam Computer Services Ltd, enabling the firm’s founder B. Ramalinga Raju and others to perpetrate India’s largest accounting fraud, the country’s federal investigative agency, the Central Bureau of Investigation (CBI), has said in its latest findings.
The findings, which have been reviewed by Mint, form the basis for the agency’s claim, in its supplementary charge sheet, filed on 24 November, that it had further evidence on the role of Price Waterhouse auditors in the fraud.
The agency’s findings are based on its study of audit standards applied by the same Price Waterhouse auditors involved in l’affaire Satyam while auditing the accounts of another Hyderabad-based listed software firm, Infotech Enterprises Ltd.
Price Waterhouse partners S. Gopalakrishnan and Srinivas Talluri, who had signed off on the accounts of Satyam for eight years till the accounting fraud came to light in January, were also found to have signed off on accounts of Infotech Enterprises for several years till March. PricewaterhouseCoopers Ltd India executive director Jairaj Purandare said his firm was yet to receive a copy of the charge sheet and could respond to the charges only after obtaining legal advice.
CBI, which is investigating the fraud at Satyam—Raju confessed on 7 January to overstating the software outsourcer’s accounts by at least Rs7,136 crore—said in its supplementary charge sheet that it had found evidence of an additional Rs4,739 crore fraud at the company.
Tech Mahindra Ltd, part of the Mahindra group, gained a controlling stake in Satyam in an auction conducted in April.
CBI had, in its first charge sheet on 7 April, accused Ramalinga Raju, his elder brother and then managing director B. Rama Raju, younger brother and director of SRSR Advisory Services Pvt. LtdB. Suryanarayana Raju, and the then chief financial officer Srinivas Vadlamani of perpetrating the fraud. Satyam’s auditors, Price Waterhouse’s S. Gopalakrishnan and Srinivas Talluri, also figured among the accused.
Three former senior officials of Satyam are also among the accused: vice-president G. Ramakrishna, senior manager D. Venkatapathi Raju, and assistant manager C. Srisailam. All the accused except Suryanarayana Raju, who obtained bail, are in judicial custody in the Chanchalguda Central Prison in Hyderabad.
In its latest findings, CBI said that while the same Price Waterhouse auditors, in an effort to ascertain the authenticity of sales invoices raised by Infotech Enterprises, had collected the live invoice samples directly from the relevant computer systems while conducting the statutory audit, they had not done so in the case of Satyam.
In the case of Satyam, CBI added, the auditors preferred to rely upon hard copies supplied by the key accused.
Similarly, in the case of Infotech Enterprises, the auditors had obtained direct confirmation on the requisite pro-forma from the bankers and also reviewed online the current account balances of the firm.
In the Satyam case, CBI said, the auditors “relied upon forged bank confirmation letters supplied by the other accused while conducting the statutory audit“ and also failed to verify the company’s current account balances online.
The “blatant deviations” adopted by the auditors auditing Satyam accounts, CBI added, showed their “underlying conspiracy” with the other key accused in the accounting fraud.
The auditors, the agency said, had written directly to the debtors and vendors while conducting the audit at Infotech Enterprises but “failed to adopt similar protocol” while auditing Satyam.
CBI also claims to have found evidence of Talluri directing his team members to “discontinue the procedure of obtaining the confirmations from debtors and vendors in respect of Satyam Computer Services Ltd from September 2007 onwards”.
The agency also said both auditors “paid no heed to the findings of the System Process Audit Team” which had pointed out “several IT system control deficiencies.”
The System Process Audit Team at Satyam had, in fact, warned both the Price Waterhouse auditors that “these deficiencies are significant in nature which can affect the genuineness of the financial statements of the company and hence reliance cannot be placed on the IT system controls,” according to CBI’s findings.
CBI has accused the auditors of taking part in the conspiracy by failing to inform the (company’s) audit committee about the system control deficiencies that were “significant in nature”. Instead, the auditors had “wrongfully presented to the audit committee that the system control deficiencies are insignificant”.
In an unreleated development PricewaterhouseCoopers announced on Monday the appointment of Gautam Banerjee as chairman of PricewaterhouseCoopers India network of entities. He replaces Ramesh Rajan, who resigned as chairman last week.
Price Waterhouse is one of PricewaterhouseCooper’s audit arms in India.