SATYAM FRAUD: EMERGING ISSUES
Dr. Ashwani Mahajan
Satyam Computers has been one of the major contributor to IT revolution is India. Till now a company which had been fourth largest Software Company of India came to ground on January 7, 2008 with its chairman Ramalinga Raju conceding that he has systematically fudged the accounts of the company. Cash and bank balance as reflected in the accounts, actually does not exist. According to a rough estimate total fraud is to the tune of around 8000 crores.
Keeping in view the interest of the investors, employees and the IT sector at large, government recently reconstituted the board of Satyam Computers, with a view to control the damage. It has even decided to give away a package to revitalize the company starving of funds to even pay the salary of its 51000 employees.
When this fraud was brought to light by Satyam’s chairman himself, the price of the share tumbled by about 80 per cent in a day. In the international market, price of its ADR depreciated by 90 per cent and its trading was forbidden forthwith. Government has even ordered an enquiry into the affairs of 8 group companies of Satyam. SEBI, Company Law Board and Institute of Chartered Accountants of India have also initiated their enquiries on their own.. But this is a fact that shareholders net worth has been eroded by thousands of crores and 51000 of workers are at the verge of losing their livelihood, exchequer and the economy would he at a great loss.
ROLE OF AUDITORS
But real question is much different and pertinent. Satyam fraud may be first of its kind in India, but not the first such fraud of the world, where fraud was given effect by forging the books of accounts. Enron an American company did exactly the same. In that case auditors were named as one of the main culprits. CEO of the company is serving 24 years of imprisonment, but at the same time auditing company Arthur Anderson has lost its existence world over after the incident. In the present scam auditing company is Price Waterhouse Cooper. Experts believe that the company could not have done a fraud of this magnitude without the connivance of the auditors. Price Waterhouse Cooper is also escaping to speak on the issue.
Fact is that when Satyam was fudging its accounts in, the auditing company was certifying these accounts to be correct. Auditor is obliged to minutely inspect each and every transaction of a firm and certify the same to be correct and as per rules. These certified account statements are then sent to the shareholders. Thus we can say that fraud has not been committed by Ramalinga Raju alone, auditing company must also have been fully involved in the same. It is worth noting that Price Waterhouse Cooper, auditing firm of Global Trust Bank (USA) also, is facing legal proceeding in the case of not only certifying fudged accounts of the bank but also giving it a good rating.
ROLE OF SEBI
Constituted under the Act of Parliament, Security Exchange Board of India (SEBI) is a regulatory body of Indian share and bond markets. It is expected from SEBI that no company or broker is allowed to act against the interests of the shareholder. In fact existence of a regulator gives a confidence amongst the stakeholders in that sector. Existence of SEBI naturally gives a confidence to the investors in the share markets. But this regulating agency has failed at various occasions. Thousands of companies vanished eating away lakhs of crores of rupees of investors and SEBI could not do any thing. Sometimes tiny cases of insider trading by companies are investigated by SEBI, fraud of lakhs of crores of rupees gets easily escaped from its scanners. Recently a company made Initial Public Offer (IPO) and lakhs of crores of application money which should have gone to an independent agency went into the accounts of the company and SEBI could not even issue a clarification in this regard.
All or any information regarding all transactions of a company, issue of capital, sale-purchase of shares in either available with SEBI or it could be asked for by it. Then why SEBI could not get a clue about such a big fraud. We should not conclude that fault lies with the officers of SEBI. Perhaps constitution of SEBI as provided by the Act of the Parliament itself forbids SEBI to proactively act against defaulting parties.
Learning lesson from the present case and to avoid repetition of such incidents, there is a need to make government’s audit compulsory for all big private sector companies on lines of public sector companies. We know that strict auditing of public sector companies by Comptroller and Auditor General of India (CAG) has been reason why there has never been any big scam in public sector companies.
Secondly there is a need to examine the constitution and functioning of SEBI and make suitable changes wherever needed to enable SEBI to meaningfully discharge its duty as a regulator in the stock market.
All multinational and Indian auditing companies which are found to be indulged in fraud in any part of the world, should be placed under the scanner and their acts be investigated in India . This world be a proactive step in the interest of the nation at large.