The Securities and Exchange Commission (SEC), the US stock market regulator, is probing the independence of auditors of Wipro Ltd, Indias third-largest software company.
We have received a voluntary document request from the SECs division of enforcement. The document request includes, among other things, issues relating to auditor independence. We are cooperating with the SECs request, Wipro said while filing its annual report (Form 20 F) with the SEC, after a one-month delay.
Suresh Senapathy, chief financial officer of Wipro, told DNA on Tuesday what the SEC is probing is the independence of external auditors because a personal transaction has taken place between our junior employee (who was involved in embezzlement) and a junior employee of the external auditor.
The outcome of the SECs review of this matter is uncertain, the company said.
A conclusion by the SEC that differs with the conclusions reached by KPMG India and our audit committee could have a material adverse effect on us and could, among other things, require us to retain new auditors and have our financial statements for one or more years re-audited, Wipro said in its filing.
Senapathy said since the transaction is between junior employees and the amount involved is small, it may not affect the independence of the auditors.
It is a procedure that is being followed, said Senapathy.
According to him, the company has recovered 90% of the embezzled amount and put it back into its books of account.
He said the fraud had escaped the companys filter because it was a small sum and was taken over a long period of three years. Senapathy said Wipros filing on the fraud with the SEC confirms lapses in the internal control procedure.
We have fixed that by putting more stringent internal control procedures in March this year. One of them is tighter password control procedure, he said.
While the filing does not contain any major concern for investors, the 208-page document deals extensively with internal control failures at the tech giant over the roughly Rs 30 crore fraud perpetrated by a former employee of Wipro that was discovered earlier this year.
Although Wipros top management have been cleared of any wrongdoing in relation to the fraud, the clean chit still raises a few doubts.
Based on its investigation, the audit committee concluded there were certain accounting entries that were either erroneous, unsupported by documentation, or both, primarily in two accounts.
However, our committee concluded there was insufficient evidence to support a conclusion that any member of current management engaged in intentional wrongful conduct, Wipro said in its filing.
As a result of identifying these material weaknesses, our management and audit committee have concluded that our previously issued report on Internal Control Over Financial Reporting (ICOFR), as of March 31, 2009, should no longer be relied upon.
As we disclosed in our Form 6-K dated March 1, 2010, we discovered acts of embezzlement by one of our junior level employees during the period from November 2006 to December 2009. In response to the discovery of such acts of embezzlement, our audit committee conducted investigations to determine, among other things, the materiality of the amounts embezzled, the design and implementation of internal control processes to detect and prevent similar misappropriations in the future and certain other issues including the appropriateness of certain accounting entries. Based on our review of the facts discovered during the investigations, we believe that the amounts embezzled were not material. We have since recovered substantially all of the embezzled amounts, the company said.