Five Indian members of
PriceWaterhouseCoopers International have been censured by the SEC for their role in missing signals of massive fraud by Satyam Computer Services. That fraud included overstatement of bank accounts by hundreds of millions of dollars from 2006 through 2008 for a total of more than $1 billion in overstated revenue and cash. The fraud was undetected until the company's former chairman confessed in 2009. The problems led PW International to replace the audit teams involved and auditors from PW firms outside India were brought into the country in 2009 to provide audit leadership. The five firms were also ordered to pay a $6-million civil money penalty as they agreed to a cease-and-desist order.
The firms censured were Lovelock & Lewes, Price Waterhouse, Bangalore, Price Waterhouse & Co., Bangalore, PriceWaterhouse, Calcutta, and Price Waterhouse & Co., Calcutta. The SEC said the five bodies operate in a way that they are indistinguishable from a single firm as they shared audit resources and their websites advertised the firm as PriceWaterhouse. The team issued unqualified audit reports for Satyam's financial statements for fiscal years 2005, 2006, 2007 and 2008. The SEC action gave in enforcing a disciplinary order of the Public Company Accounting Oversight Board
Among the elements of fraud perpetuated by Satyam's management was creation of more than 6,000 phony invoices that were entered in company ledgers as revenue, income or accounts receivable. "Former senior management at Satyam manufactured scores of false bank statements, confirmations, and supporting documents to reflect payment of the false invoices and created over $1 billion in fictitious cash balances and other interest bearing deposits," the SEC complaint reads. Satyam management utilized "super-user" rights to the computer system to create more than $1 billion in fake invoices.
When notified by PCAOB that an inspection would be made in 2007, the audit team inserted a back-dated management letter and debtor confirmation requests to be include with fiscal 2007 records.
The SEC said despite quality control audits, the PW teams routinely relinquished control of the delivery and receipt of cash confirmation to their clients and rarely questioned their assertions. Former Satyam chairman B. Ramalinga Raju issued a letter in January 2009 that while the balance sheet of Sept. 30, 2008, state the company had more than $1 billion in fictitious cash and bank balances, the actual amount was $66 million. The SEC action says the Satyam engagement team members said they had ceded control to the company because they felt it was honest. A number of disciplinary and legal actions are underway in India.
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards. Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that. A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
