Mahindra Satyam may end up paying a huge fee for restatement of its book of accounts that were allegedly fudged by its former Chairman Mr B. Ramalinga Raju.
Indications are that the Hyderabad-based company will shell out close to Rs 60 crore by September when the accounts are expected to be restated.
“If you include the forensic accounting and all other payments the company has to make for the restatement, the outgo will easily be ‘north of Rs 50 crore'. With every round of delay, the costs are going up,” a top official in the know told Business Line.
Days after Mr Raju confessed to fudging the Satyam accounts, a Government-nominated board had appointed auditing firms KPMG and Deloitte to help clear the mess.
Audit issues
Due to a host of reasons ranging from the complexity of the fraud to the unavailability of key documents, the restatement has fallen behind schedule three times already with the concomitant affect of pushing up the overall costs.
The company's outgo goes up given that most audit firms charge on a man-hour basis, sources said.
Mr Vineet Nayyar, Chairman of Mahindra Satyam, referred to this at a recent press conference, when he said that the Satyam accounts restatement is “costing the company a fortune”. However, he did not provide further details
A spokesperson for KPMG said, “We do not comment on client matters.” His counterpart at Deloitte said it was now the statutory auditor for the Mahindra Satyam accounts and no longer associated with the process of account restatement.
So, how do industry watchers view this development?
“If the company is paying over Rs 50 crore for restating its accounts, just imagine what could potentially be the size of the fraud itself. I think that it is detrimental to shareholder interests,” Mr Uttam Prakash Agarwal, former President of the Institute of Chartered Accountants of India, said.
The positive part, according to him, is that it sends a message to the corporate world that cost of investing in compliance cannot be substituted with anything else
In all fairness to the audit firms, the Satyam challenge was something unparallel in accounting frauds. During the course of the process, the two accounting firms had dredged almost two terabytes of data from laptops and personal computers at Satyam. Since this information is much more than what could have been warehoused anywhere in India, it was moved to the UK till lab facilities could be created here, a recent news report said.
Source: The Hindu Business Line; By Adith Charlie, dt: July 30
Saturday, July 31, 2010
Thursday, July 29, 2010
Indian-American woman pleads guilty in $34 million fraud case
WASHINGTON: An Indian-American woman executive has pleaded guilty to defrauding her company of $34 million to pay for her "irrational" buying sprees and faces up to 20 years in jail on conviction.
46-year-old Sujata Sachdeva, a former Vice President of finance at Koss Corporation, pleaded guilty to all the six counts of wire fraud, for which she was charged early this year, before a Milwaukee court in Wisconsin on Tuesday.
"Ms Sachdeva recognises the harm she has caused to her employers, the company shareholders, her colleagues and her friends, but she most regrets the pain and public embarrassment she has caused to her husband, Ramesh, and their two young children," her attorney Mike Hart said.
Reading out a statement with Sachdeva standing besides him outside the Milwaukee court, Hart said she has cooperated with federal prosecutors to recover as much of the merchandise as possible to pay restitution to Koss Corporation, a headphone manufacturer.
Sachdeva has begun to address the issues that led to her conduct and accepts full responsibility for her actions, and hopes for a fair and just result, Hart said.
Facing five to 20 years of imprisonment, if convicted, Sachdeva remains free on bond pending sentencing, which is scheduled for October 22.
According to the indictment, Sachdeva authorised numerous wire transfers of funds from bank accounts maintained by Koss to pay for her American Express credit card bills.
In addition, Sachdeva used money from Koss' bank accounts to fund numerous cashier's checks, which she also used to pay her personal expenses.
Sachdeva used the money she fraudulently obtained from Koss to purchase personal items including women's clothing, furs, purses, shoes, jewellery, automobiles, china, statues, and other household furnishings.
Sachdeva also used the money to pay for hotels, airline tickets and other travel expenses for her and others; to pay for renovations and improvements to her home; and to compensate individuals providing personal services to her and her family, the indictment alleged.
According to the indictment, Sachdeva sought to conceal her fraud by directing other Koss employees to make numerous fraudulent entries in Koss' books and records to make it appear that Sachdeva's fraudulent transfers were legitimate business transactions.
Source: The Times Of India; 29.07.10
46-year-old Sujata Sachdeva, a former Vice President of finance at Koss Corporation, pleaded guilty to all the six counts of wire fraud, for which she was charged early this year, before a Milwaukee court in Wisconsin on Tuesday.
"Ms Sachdeva recognises the harm she has caused to her employers, the company shareholders, her colleagues and her friends, but she most regrets the pain and public embarrassment she has caused to her husband, Ramesh, and their two young children," her attorney Mike Hart said.
Reading out a statement with Sachdeva standing besides him outside the Milwaukee court, Hart said she has cooperated with federal prosecutors to recover as much of the merchandise as possible to pay restitution to Koss Corporation, a headphone manufacturer.
Sachdeva has begun to address the issues that led to her conduct and accepts full responsibility for her actions, and hopes for a fair and just result, Hart said.
Facing five to 20 years of imprisonment, if convicted, Sachdeva remains free on bond pending sentencing, which is scheduled for October 22.
According to the indictment, Sachdeva authorised numerous wire transfers of funds from bank accounts maintained by Koss to pay for her American Express credit card bills.
In addition, Sachdeva used money from Koss' bank accounts to fund numerous cashier's checks, which she also used to pay her personal expenses.
Sachdeva used the money she fraudulently obtained from Koss to purchase personal items including women's clothing, furs, purses, shoes, jewellery, automobiles, china, statues, and other household furnishings.
Sachdeva also used the money to pay for hotels, airline tickets and other travel expenses for her and others; to pay for renovations and improvements to her home; and to compensate individuals providing personal services to her and her family, the indictment alleged.
According to the indictment, Sachdeva sought to conceal her fraud by directing other Koss employees to make numerous fraudulent entries in Koss' books and records to make it appear that Sachdeva's fraudulent transfers were legitimate business transactions.
Source: The Times Of India; 29.07.10
Thursday, July 22, 2010
SEBI makes cell ban in dealing rooms official
MUMBAI: Most mutual funds have barred use of mobile phones in their dealing rooms to prevent front-running, though regulations didn’t require them
to do so until recently.
Last week, the Securities and Exchange Board of India (Sebi) made this ban official on the heels of its recent order, which pulled up an equities dealer at HDFC Asset Management for leaking information of its planned trades to a few other investors.
In a communication to mutual funds, the market regulator, in addition to the ban on mobile phone usage in dealing rooms, also asked asset management companies (AMCs) to record telephone calls from or into dealing rooms. Also, recorded calls by dealers should be regularly monitored by its compliance department, Sebi said.
Mutual fund officials said the practice of front-running is unlikely to cede, following the new rules by Sebi, as most AMCs already have such systems in place. “It doesn’t say anything more than what we are already doing,” said a top official with a private mutual fund.
Mutual fund officials said more steps are already in place to check front-running than what are mentioned in the circular. These include having restrictions on the rates at which dealers can place the ‘buy’ or ‘sell’ order in a day and checks on any changes in their lifestyles.
“If a dealer suddenly manages to buy a house in a plush locality or even a luxury car, then, we step up our vigilance. Similarly, we look if any particular broker talks more to a particular dealer than the fund manager...These are leads for us,” said the chief investment officer with a private mutual fund.
In a mutual fund, the practice of front-running harms unitholders, as it increases the cost of share purchases or reduces the realisations from share sale, thereby depressing returns.
Some mutual fund officials and brokers said Sebi’s emphasis to tackle front-running only in the dealing rooms is misplaced. “The focus is more on the small fish (dealers), while big sharks (some fund managers and market operators) have been let off the hook,” said a fund manager with a bank-owned mutual fund. “The profits made by the dealer (HDFC AMC) and his associates are paltry compared with what is being made outside the dealing room,” he said.
The three investors, who placed orders in the same set of stocks just before those were traded by dealer Nilesh Kapadia on HDFC AMC’s behalf, made combined profits of about `2 crore in four months, according to the Sebi order on June 17.
Brokers said fund managers, who usually buy or sell shares ahead of their employers, escape the regulatory radar by spreading their trades across various brokers. “Fund managers ensure that there is no pattern in the way any person or broker, who has been assigned to buy shares on their behalf, has done the trade,” said a broker, who is familiar with such trades. “There is no way that the regulator can catch them in the existing regulatory situation,” he said.
Source: The Economic Times
to do so until recently.
Last week, the Securities and Exchange Board of India (Sebi) made this ban official on the heels of its recent order, which pulled up an equities dealer at HDFC Asset Management for leaking information of its planned trades to a few other investors.
In a communication to mutual funds, the market regulator, in addition to the ban on mobile phone usage in dealing rooms, also asked asset management companies (AMCs) to record telephone calls from or into dealing rooms. Also, recorded calls by dealers should be regularly monitored by its compliance department, Sebi said.
Mutual fund officials said the practice of front-running is unlikely to cede, following the new rules by Sebi, as most AMCs already have such systems in place. “It doesn’t say anything more than what we are already doing,” said a top official with a private mutual fund.
Mutual fund officials said more steps are already in place to check front-running than what are mentioned in the circular. These include having restrictions on the rates at which dealers can place the ‘buy’ or ‘sell’ order in a day and checks on any changes in their lifestyles.
“If a dealer suddenly manages to buy a house in a plush locality or even a luxury car, then, we step up our vigilance. Similarly, we look if any particular broker talks more to a particular dealer than the fund manager...These are leads for us,” said the chief investment officer with a private mutual fund.
In a mutual fund, the practice of front-running harms unitholders, as it increases the cost of share purchases or reduces the realisations from share sale, thereby depressing returns.
Some mutual fund officials and brokers said Sebi’s emphasis to tackle front-running only in the dealing rooms is misplaced. “The focus is more on the small fish (dealers), while big sharks (some fund managers and market operators) have been let off the hook,” said a fund manager with a bank-owned mutual fund. “The profits made by the dealer (HDFC AMC) and his associates are paltry compared with what is being made outside the dealing room,” he said.
The three investors, who placed orders in the same set of stocks just before those were traded by dealer Nilesh Kapadia on HDFC AMC’s behalf, made combined profits of about `2 crore in four months, according to the Sebi order on June 17.
Brokers said fund managers, who usually buy or sell shares ahead of their employers, escape the regulatory radar by spreading their trades across various brokers. “Fund managers ensure that there is no pattern in the way any person or broker, who has been assigned to buy shares on their behalf, has done the trade,” said a broker, who is familiar with such trades. “There is no way that the regulator can catch them in the existing regulatory situation,” he said.
Source: The Economic Times
Monday, July 12, 2010
ICAI for compulsory Outsourcing of Internal Audit functions
Accounting regulator the Institute of Chartered Accountants of India (ICAI) has asked the government to make outsourcing of internal audit functions mandatory for companies to prevent a Satyam-like fraud from happening again.
The suggestion is part of the recommendations by a high-powered committee of ICAI to the Corporate Affairs Ministry in the aftermath of a Rs 10,000-crore scam in Satyam Computer and is intended to strengthen the internal audit system of companies.
"We have recommended that internal audit should be outsourced rather than in-house because internal audit in-house is always dependent on the management of the company. Internal audit from outside will always be better, and then it should be given to chartered accountants," ICAI President Amarjit Chopra told PTI.
The role of internal auditors came under scanner after Satyam Computer founder B Ramalinga Raju confessed to having cooked the books of the company for years. The IT firm's internal audit head S Prabhakar Gupta was arrested for his alleged role in the multi-crore fraud.
Interestingly, Satyam's internal audit team was given recognition of commitment award by the US-based Institute of Internal Auditors in 2006.
Chopra further said that since internal audit is the first check-post for any accounting fraud, due care should be taken to ensure it is conducted by the right people and independently.
"We already have 17 internal audit standards and we have asked the Government to make these standards mandatory for internal audits, whether through Sebi or through company law, so that there is standardisation of internal audit procedures," Chopra said.
The standards are benchmarks for internal auditors and are aimed at ensuring standardisation, independence and more consistency in the functioning.
They also differentiate auditor's responsibilities when it comes to complying with the law and regulations that have direct impact on financial statements as well as significant effect on the functioning of the company.
Source: Business India; July 8,2010; By Press Trust of India, New Delhi
The suggestion is part of the recommendations by a high-powered committee of ICAI to the Corporate Affairs Ministry in the aftermath of a Rs 10,000-crore scam in Satyam Computer and is intended to strengthen the internal audit system of companies.
"We have recommended that internal audit should be outsourced rather than in-house because internal audit in-house is always dependent on the management of the company. Internal audit from outside will always be better, and then it should be given to chartered accountants," ICAI President Amarjit Chopra told PTI.
The role of internal auditors came under scanner after Satyam Computer founder B Ramalinga Raju confessed to having cooked the books of the company for years. The IT firm's internal audit head S Prabhakar Gupta was arrested for his alleged role in the multi-crore fraud.
Interestingly, Satyam's internal audit team was given recognition of commitment award by the US-based Institute of Internal Auditors in 2006.
Chopra further said that since internal audit is the first check-post for any accounting fraud, due care should be taken to ensure it is conducted by the right people and independently.
"We already have 17 internal audit standards and we have asked the Government to make these standards mandatory for internal audits, whether through Sebi or through company law, so that there is standardisation of internal audit procedures," Chopra said.
The standards are benchmarks for internal auditors and are aimed at ensuring standardisation, independence and more consistency in the functioning.
They also differentiate auditor's responsibilities when it comes to complying with the law and regulations that have direct impact on financial statements as well as significant effect on the functioning of the company.
Source: Business India; July 8,2010; By Press Trust of India, New Delhi
Tuesday, July 6, 2010
Raise the bar on corporate governance
THERE IS A NEED TO EXPAND THE NET & IMPROVE IMPLEMENTATION OF GOVERNANCE NORMS
MONISH CHATRATH Executive Director,Mazars
THE START OF THIS CENTURY WAS MARKED by an emphasis on corporate governance,thanks largely to a string of collapses of several high profile companies.The world of business was shocked with both the scale and age of unethical and illegal operations.Consequently,the need for adoption of good corporate governance principles has not only got reinforced,but inevitably and inextricably,efforts to this end have gathered momentum every time a new corporate scandal came to light.And India is no exception to this phenomenon.
Events last year involving Satyam Computer Systems have prompted several questions and various forms of introspections on corporate governance practices,as well as brought focus on aspects relating to discipline exercised by the dominant shareholder,accountability of the management,role of the auditors (external and internal),functioning of the board and audit committee and also the value of ethical conduct in business.The spotlight is now firmly on key aspects of the governance framework,with particular emphasis on the audit and finance functions which have a legal,moral and ethical responsibility to identify and disclose aspects of a promoter-driven agenda that have the potential to impact the interests of other stakeholders adversely.
Although corporate governance is the legal framework,the ethical framework and the moral framework within which business decisions are taken;the focus in India continues to be largely around the legal framework.Since there is no dearth of legislation relating to corporate governance,it is the latter two aspects that need more focus in India.The challenge for policymakers in India is to reach an appropriate balance of legislative and regulatory reform,taking into consideration international best practices that augur well with the growth climate in India,while also fostering greater enterprise and enhancing competitiveness in a manner that can stimulate further investments.
While some of the current laws and regulations in India are possibly amongst the best in the world,there are several others which are somewhat archaic.India also needs greater focus and more proactive,yet a simplified monitoring and enforcement framework to ensure effective levels of compliance with regulations.Undoubtedly unless there is a genuine intention within an organisation to incorporate compliance in principle as opposed to compliance in legal form into corporate strategy and operations,regulations will only have a limited effect.
In business ethics,what was good is becoming bad and what was considered bad is now good.Standards for corporate governance that have worked for decades are looking old fashioned or immoral while other practices that raised questions are now becoming totally acceptable.Debates,discussions and reviews on corporate governance have predominantly focused on large,listed and high profile companies with dispersed shareholdings and there is an impending need to expand the net,in recognition of the impact of issues relating to financial transparency,the role of access to outside capital and conflict resolution,to non-listed and family controlled companies.These today are considered a crucial component of the growth engine for the Indian economy.
While analysing corporate governance in PSUs,the consideration that often come up relate to the perceptions on the over-regulation of state-owned units in India,which on one hand are accountable to various authorities under several regulations including Parliament,Comptroller and Auditor General of India,Central Vigilance Commission and the Right to Information Act and on the other are susceptible to bureaucratic hurdles.
Good governance has been further augmented in the past few years by a rise in the recognition of CSR.This is based on an understanding of the expectations that our communities have regarding the social contract that organisations have with communities.This may include public reporting,openness to input,access points for complaints about services or tips regarding illegal actions of employees.
Corporate governance and CSR are both extremely important to an organisation.But it is not a natural thing to separate the two.If an organisation has a well formed governance programme in place,the same would possibly also take care of most of the social issues.Organisations are increasingly focusing on the impact of their business activity on society and in doing so many have created CSR programmes to balance their operations.Taking responsibility for its impact on society means in the first instance that an organisation takes accountability for its actions and the effect of the same on particular interests groups within the society.
In todays globalised,interconnected and competitive world,the way that environmental,social and corporate governance issues are managed is a part of the organisations overall management philosophy to compete successfully.Organisations that perform better with regard to these issues can increase shareholder value by properly managing risks,anticipating regulatory action or accessing new markets while at the same time contributing to the sustainable development of the societies in which they operate.
Sustainable value also emanates from an organisations ability to adhere with a corporate culture of conscience and consciousness,transparency and openness,fairness and accountability,propriety and equity.Certain combinations of governance mechanism may work for certain periods of time.Change,however,will inevitably occur.
Development of norms and guidelines are an important first step in a serious effort to improve corporate governance.The bigger challenge in India,however,lies in the proper implementation of those rules at the ground level.More needs to be done to ensure adequate corporate governance in the average Indian company.Further,even the most prudent norms can be hoodwinked in a system plagued with widespread corruption.
Nevertheless,with the successful turnaround of Satyam with the commendable and active support of the government which itself took swift and planned action,at the same time exercising considered restrain wherever required instead and with industry organisations and chambers of commerce themselves pushing for an improved corporate governance system,the future of corporate governance in India promises to be distinctly better than the past.
(Views are personal).
MONISH CHATRATH Executive Director,Mazars
THE START OF THIS CENTURY WAS MARKED by an emphasis on corporate governance,thanks largely to a string of collapses of several high profile companies.The world of business was shocked with both the scale and age of unethical and illegal operations.Consequently,the need for adoption of good corporate governance principles has not only got reinforced,but inevitably and inextricably,efforts to this end have gathered momentum every time a new corporate scandal came to light.And India is no exception to this phenomenon.
Events last year involving Satyam Computer Systems have prompted several questions and various forms of introspections on corporate governance practices,as well as brought focus on aspects relating to discipline exercised by the dominant shareholder,accountability of the management,role of the auditors (external and internal),functioning of the board and audit committee and also the value of ethical conduct in business.The spotlight is now firmly on key aspects of the governance framework,with particular emphasis on the audit and finance functions which have a legal,moral and ethical responsibility to identify and disclose aspects of a promoter-driven agenda that have the potential to impact the interests of other stakeholders adversely.
Although corporate governance is the legal framework,the ethical framework and the moral framework within which business decisions are taken;the focus in India continues to be largely around the legal framework.Since there is no dearth of legislation relating to corporate governance,it is the latter two aspects that need more focus in India.The challenge for policymakers in India is to reach an appropriate balance of legislative and regulatory reform,taking into consideration international best practices that augur well with the growth climate in India,while also fostering greater enterprise and enhancing competitiveness in a manner that can stimulate further investments.
While some of the current laws and regulations in India are possibly amongst the best in the world,there are several others which are somewhat archaic.India also needs greater focus and more proactive,yet a simplified monitoring and enforcement framework to ensure effective levels of compliance with regulations.Undoubtedly unless there is a genuine intention within an organisation to incorporate compliance in principle as opposed to compliance in legal form into corporate strategy and operations,regulations will only have a limited effect.
In business ethics,what was good is becoming bad and what was considered bad is now good.Standards for corporate governance that have worked for decades are looking old fashioned or immoral while other practices that raised questions are now becoming totally acceptable.Debates,discussions and reviews on corporate governance have predominantly focused on large,listed and high profile companies with dispersed shareholdings and there is an impending need to expand the net,in recognition of the impact of issues relating to financial transparency,the role of access to outside capital and conflict resolution,to non-listed and family controlled companies.These today are considered a crucial component of the growth engine for the Indian economy.
While analysing corporate governance in PSUs,the consideration that often come up relate to the perceptions on the over-regulation of state-owned units in India,which on one hand are accountable to various authorities under several regulations including Parliament,Comptroller and Auditor General of India,Central Vigilance Commission and the Right to Information Act and on the other are susceptible to bureaucratic hurdles.
Good governance has been further augmented in the past few years by a rise in the recognition of CSR.This is based on an understanding of the expectations that our communities have regarding the social contract that organisations have with communities.This may include public reporting,openness to input,access points for complaints about services or tips regarding illegal actions of employees.
Corporate governance and CSR are both extremely important to an organisation.But it is not a natural thing to separate the two.If an organisation has a well formed governance programme in place,the same would possibly also take care of most of the social issues.Organisations are increasingly focusing on the impact of their business activity on society and in doing so many have created CSR programmes to balance their operations.Taking responsibility for its impact on society means in the first instance that an organisation takes accountability for its actions and the effect of the same on particular interests groups within the society.
In todays globalised,interconnected and competitive world,the way that environmental,social and corporate governance issues are managed is a part of the organisations overall management philosophy to compete successfully.Organisations that perform better with regard to these issues can increase shareholder value by properly managing risks,anticipating regulatory action or accessing new markets while at the same time contributing to the sustainable development of the societies in which they operate.
Sustainable value also emanates from an organisations ability to adhere with a corporate culture of conscience and consciousness,transparency and openness,fairness and accountability,propriety and equity.Certain combinations of governance mechanism may work for certain periods of time.Change,however,will inevitably occur.
Development of norms and guidelines are an important first step in a serious effort to improve corporate governance.The bigger challenge in India,however,lies in the proper implementation of those rules at the ground level.More needs to be done to ensure adequate corporate governance in the average Indian company.Further,even the most prudent norms can be hoodwinked in a system plagued with widespread corruption.
Nevertheless,with the successful turnaround of Satyam with the commendable and active support of the government which itself took swift and planned action,at the same time exercising considered restrain wherever required instead and with industry organisations and chambers of commerce themselves pushing for an improved corporate governance system,the future of corporate governance in India promises to be distinctly better than the past.
(Views are personal).
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