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Satyam scam: SFIO finds auditors guilty
May, 04th 2009

The Serious Fraud Investigation Office (SFIO) in its report to the Ministry for Corporate Affairs (MCA) has indicated that the auditors were guilty of falsification of the companys accounts.

Logical conclusion

The SFIO report indicates that the auditors had inkling that the accounts of the company were fudged. Asked if proper auditing standards were followed in the matter of confirmation of bank balances, official sources told Business Line that the SFIO report indicates that this was done. However, according to the report, it was not taken to its logical conclusion, sources said.

The Price Waterhouse auditors, Mr Srinivas Talluri and Mr S. Gopalakrishnan, who had audited the accounts of Satyam are anyway under the scanner.

On the issue of the role of the independent directors, the SFIO is understood to have said that they were mute spectators in the entire process.

Inferences would need to be drawn from this whether the independent directors would be held guilty or not, sources said.

ED probe?

The SFIO report, which is currently under examination in the Ministry, has also proposed that the case may be referred to the Enforcement Directorate for further investigation, official sources said. Most expenses of the company have been incurred abroad. Revenues earned abroad require to be verified, which is not in the direct jurisdiction of SFIO, officials said.

The Ministry had received the report from the SFIO in the second fortnight of last month. After examining the SFIO report and going into the merits, the Ministry will decide whether to accept the recommendations of the investigating body or not, sources said.

The process of examining the SFIO report is expected to be completed in next couple of days, sources said.

Sources said the SFIO report has found violations under Section 233 of the Companies Act.

The Section deals with penalty for non-compliance by the auditor.

Other violations

The investigating agency is understood to have recommended action for violation of Section 628 of the Companies Act, which provides for imprisonment for making false statement, sources said.

In the report the SFIO has also found Satyam guilty of violating Section 209 of the Companies Act which deals with books of accounts to be maintained by a company, sources said.

Divident payout

Defaults have also been found in the dividend payout. The SFIO report has indicated that the company has not followed the provisions of Section 205 of the Companies Act, which envisages dividend to be paid only out of profit, sources said. Further, the SFIO has also found violations of various sections of IPC which deal with forgery.

After the confessions made by Mr B Ramalinga Raju, the then Chairman, regarding the multi-crore fraud on January 7 at Satyam Computer Services, the Government had ordered investigation by the SFIO on January 13.

The now disgraced Chairman of Satyam had admitted to faking financial numbers to the tune of Rs 7,136 crore, including Rs 5,040 crore of non-existent cash and bank balances.

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