Accounting frauds, as I have said earlier, are notoriously difficult to uncover. Despite the cries of victory by the assorted investigation agencies in the Satyam case, the trail of crumbs back to the candy story is not as clearly visible as they would have hoped. The two trails the investigators are working on is the missing cash of Rs 5,040 crore and the discrepancy in the number of employees on the rolls of Satyam Computers and the number provided by independent sources like the Employees Provident Fund Organisation.
The latter is easier to establish,as this newspaper has shown. But at the end of the day, is it a crime to overstate the number of your employees? It is subterfuge as far as clients are concerned. But no company awards contract on the basis of numbers and there are no regulatory issues if the numbers are overstated in India. This could be possible in the US, had the company been based there, as there was a corresponding issue of how many employees were to draw social security status and so on. But an Indian company can be hauled up for understating employees only. Companies, especially in the Indian manufacturing sector, often do thisto escape closure norms. But Satyam, by overstating employees, only establishes intent to fraud, at best. Nothing more!
The other trail is of course more promising. The company was inflating its balance sheet, which by all accounts is a major offence. Both the Securities and Exchange Board of India and the US Securities and Exchange Commission would hand out major sentences for it. But the investigations from Sebi have so far not even begun in real earnest and SEC will take more time. Sebi is yet to manage a full round of interrogation with
Ramalinga Raju. Meanwhile the investigators are coming up with a real conundrum. They are generally agreed that Satyam showed fixed or other current account deposits with banks that were fraudulent. The onus of proof will obviously be put on Raju to prove otherwise. But, and this is plausible, if it turns out that even one bank had indeed issued such certificates there could be a sizeable fall out. It would not prove immediately that the bank had colluded with Raju. But assuming a bank had issued a fixed deposit receipt on a genuine entry but had not bothered to ask the company to correct the entry in its balance sheet, what are we to make of it? This might sound like conjecture, but it is not too far-fetched.
Big companies undertake a huge number of transactions with banks and it seems incredible that so many banks never noticed that here was a balance sheet that had got so many figures vis a vis their bank wrong. The omissions do not reduce the culpability of Ramalinga Raju, but they do indicate there could be more systemic problems. Since neither the Serious Fraud Office nor Sebi has the mandate to ask these questions from the banks, does this mean the terms of the inquiry need to be made more broad-based to include RBI?
If the above scenario is true, and it does not seem a very wild conjecture, then the culpability of the auditors Price Waterhouse seems weaker. An auditor is supposed to be guided by the papers that the audited party i.e. Satyam produced. To the extent that the receipts of deposits were originals, the auditor would have little chance of picking up the trail. It does of course seem that Price Waterhouse made very elementary errors, like accepting the reasons why Satyam?s management needed to raise loans when it had a cash balance of over Rs 5,000 crore. But that is not the same as fraud. At the end of the day, it seems difficult to escape the verdict that there were more hands in the till than the Raju family, hailing from different regulatory regimes.
subhomoy.bhattacharjee@expressindia.com