In an incident thought to be the first of its kind in India,two partners of Price Waterhouse, statutory auditors of Satyam Computers, were arrested by the Crime Investigation Department (CID) of the Andhra Pradesh police on Saturday on charges of conspiracy, failure to scrutinise records and connivance.
S. Gopalakrishnan and his deputy, Talluri Srinivas, had signed Satyam’s annual statements of accounts without performing their statutory duties as external auditors, a senior CID official told The Hindu.
Citing a specific charge, he said they had accepted the forged fixed deposit receipts and particulars of balances furnished to them by the company without verifying them with bankers.
Prosecutors informed the court in the last few days that BNP Paribas had denied holding fixed deposits of Satyam Computers that were reflected in the company’s accounts. Earlier, HDFC, Basheerbagh branch, said it had no documents which were on the auditors’ files.
The official said the audit firm was paid an annual fee of Rs. 5 crore as compared to a maximum of Rs. 2 crore incurred for the same job by other IT majors. With the arrest of the two auditors, the number of persons held in the Satyam fraud has gone up to six.
During the arrest of the two auditors, the CID recovered several documents from the office of Price Waterhouse at the Madhapur Hi-Tech City here. It also summoned several middle-level managers of Satyam Computers to the office of the Director-General of Police for questioning. The investigating agency is sharing information with the Serious Fraud Investigation Office (SFIO) which has seized documents of Maytas Infra and Maytas Properties — companies run by the sons of the former Satyam chief, Ramalinga Raju.
In its investigations, the SFIO found a mismatch between the trial balance (the balance in the account after a transaction) and what was claimed by Satyam in the current account number 00120559 New York branch of the Bank of Baroda. The difference was Rs. 1,733 crore.
A conviction for fraud, if proven, carries a maximum sentence of seven years in prison and that for criminal conspiracy can range from a few years to life imprisonment.
They were remanded in judicial custody till February 6.
A lawyer to represent the PwC partners was flown in from Chennai. The functioning of auditors has come in for sharp scrutiny since the Satyam scam broke, with comparisons being made between PwC and Arthur Andersen, the auditing company than went down with Enron.
PwC initially claimed client confidentiality. But later, sought to absolve itself of all responsibility. Those sympathetic to the company are insisting that collusive fraud is extremely difficult to detect but others say that the auditing company cannot be absolved of charges of not revealing the true financial position of the company especially since they were its auditors from 2000 to 2008.