Satyam to pay $10 million for fraudulently overstating accounts; PwC to pay $7.5 million for deficient audits into the company’s statements enabling the fraud to go undetected
Washington/New Delhi: In a major development in the Satyam fraud case, US regulators on Tuesday fined the software firm and its auditors PricewaterhouseCoopers (PwC) India a combined $17.5 million for the accounts bungling that went undetected for several years.
The United States Securities Exchange Commission (US SEC) said Satyam Computer Services has agreed to pay a fine of $10 million towards settlement of charges of fraudulently "overstating the company's revenue, income and cash balances by more than $1 billion over five years".
Besides, the SEC has also asked PriceWaterhouse India (PW India), the former auditor of Satyam Computers, to pay $6 million in penalty for conducting "deficient audits of the company's financial statements and enabling a massive accounting fraud to go undetected for several years".
Also, the statement said, Lovelock & Lewes and Price Waterhouse Bangalore have agreed to pay the Public Company Accounting Oversight Board (PCAOB) a $1.5 million penalty for their violations of PCAOB rules and standards in relation to the Satyam audit engagement, PTI reports.
"PW India violated its most fundamental duty as a public watchdog by failing to comply with some of the most elementary auditing standards and procedures in conducting the Satyam audits. The result of this failure was very harmful to Satyam shareholders, employees and vendors," said Robert Khuzami, director of SEC's Division of Enforcement.
While Satyam could not be contacted for comment, Deepak Kapoor, chairman of the PwC network of firms in India, said, "Our settlements with the SEC and PCAOB are positive steps and important milestones for PW India. The confession of fraud at Satyam by its chairman was a shock to the Indian business community and to all concerned."
Besides, the SEC statement said, PW India affiliates agreed to refrain from accepting any new US-based clients for six months, establish training programmes for its officers and employees on securities laws and accounting principles; institute new pre-opinion review controls; revise its audit policies and procedures; and appoint an independent monitor to ensure these measures are implemented.
Cheryl Scarboro, chief of the SEC's Foreign Corrupt Practices Act Unit, said: "PW India failed to conduct even the most fundamental audit procedures.
Audit firms worldwide must take seriously their critical gate-keeping duties whenever they perform audit engagements for SEC-registered issuers and their affiliates, and conduct proper audits that exercise professional skepticism and care."
The SEC's order instituting administrative proceedings against the firms finds that PW India staff failed to conduct procedures to confirm Satyam's cash and cash equivalent balances or its accounts receivables, it said.
Specifically, the order finds that PW India's "failure to properly execute third-party confirmation procedures resulted in the fraud at Satyam going undetected" for years.
The SEC statement said that PW India's failures in auditing Satyam "were indicative of a quality control failure throughout PW India" because PW India staff "routinely relinquished control of the delivery and receipt of cash confirmations entirely to their audit clients and rarely, if ever, questioned the integrity of the confirmation responses they received from the client by following up with the banks".
In January 2008, Satyam Computer founder B Ramalinga Raju had admitted to committing an accounting fraud (of about Rs7,000 crore) spread over a period of five years.
SEC had filed a complaint in the US District Court alleging that former senior officials at Satyam used false invoices and forged bank statements to inflate the company's cash balances and make it appear far more profitable to investors.
Satyam's American depository shares traded on the New York Stock Exchange. After the fraud came to light, Satyam was taken over by the government and was later acquired by Mahindras.
With these arrests, a total 13 people have been arrested so far
New Delhi: Two officials of the Directorate General of Civil Aviation (DGCA) have been arrested by the Delhi police on charges of helping pilots procure commercial pilot licences.
Ashok Chand, deputy commissioner of police (crime), told PTI that the two officials, MJ Bhattacharya and Mohammed K Ansari, were arrested by the Crime Branch yesterday. They are charged with helping pilots Hiren Nagar and Abhishek Kaushik procure commercial pilot licences.
With these arrests, a total of 13 people-some of them pilots-have been arrested in connection with the fake pilot licences case so far. Mr Nagar and Eknath Patil, described as a tout, were arrested by a Delhi police team in Ahmedabad on Monday. Mr Kaushik had allegedly obtained a licence by submitting forged marksheets to the DGCA.
"One has to clear three subjects-aviation meteorology, radio aids and instruments and air navigation-to secure an air transport pilot licences, which is mandatory for becoming a commander of an aircraft. However, these pilots failed in one or the other paper," Mr Chand said. During investigations, it had been revealed that Mr Kaushik got acquainted with Mr Nagar at a Flying School in Madhya Pradesh where they learned flying.
The DGCA is said to be in the process of scrutinising the licences of up to 4,000 pilots, following the discovery of the fake licences scam.
At a Round Table on health insurance portability hosted by Moneylife Foundation, leaders from the insurance business express concerns over unresolved issues, ranging from data sharing to the cost to customers
Insurance leaders are unanimous that health insurance portability is a positive for the business and customers. But they have several questions over how it will pan out, when it is introduced in July this year.
At a Round Table hosted by Moneylife Foundation on Tuesday, top bosses raised several issues on this matter that are not resolved, and they made suggestions on how it could be best implemented. The programme at Rachana Sansad hall, in Dadar, was well attended and highly interactive.
According to M Ramadoss, chairman & managing director, The New India Assurance Company Limited, the Insurance Regulatory and Development Authority (IRDA) has come up with this announcement as insurance companies were not able to evolve a common standard product over the last one year.
Portability will allow policyholders to switch over to another insurance company with the same conditions. "The accepting insurer shall provide cover, at least up to the sum assured in the previous insurance policy," the insurance regulator has said. The new facility will also help those policyholders who stick to one insurer throughout, for fear of losing the cover for pre-existing diseases (PED).
Dr Amarnath Ananthanaryanan, CEO and managing director, Bharati AXA General Insurance, said that in spite of teething problems, which will be there in data transfer between insurers, it will lead to the evolution of a common database across insurers.
Sudhir Sarnobat, managing director, Medimanage Insurance Broking, stressed that an independent agency should come forward to create a database of insured in an authentic manner and make it accessible to all insurers and brokers.
According to Pawan Singhal, director - legal and regulatory affairs, Max Bupa Health Insurance, health insurance portability is a win-win situation for both the insurer and insured. There would be challenges in implementation, but in a country like India, where health insurance should be accessible to all and offered to the masses, portability is a clear step forward.
Fali Poncha, executive chairman of IRICS Broking Services and a veteran of the insurance industry, cautioned there were a host of issues still unresolved when a customer is expected to move from one insurance company to another, and that the customer may not get all the benefits he enjoyed previously when he moves to a new insurance company at the same premium. Portability, therefore, would be only due to unhappiness with the service by the old insurer. When an employee who enjoys a group mediclaim policy moves to another employer/location within the country, there is lack of clarity over whether the benefits would be the same on portability.
Mr Ramadoss explained that there was a problem of low awareness on health insurance, as well as low penetration by insurers. He underlined the need to educate customers and said health insurance portability was a minor advantage.
The insurer must have patience, not to make profits from the first year onwards, and the customer must have commitment to stay with the insurance company for long years. Portability may lead to poaching of customers with low claims, leading to public sector insurance companies being left with a larger share of customers in the older age groups.
Portability is available to only 2% of the population which is already insured. Further, portability is limited to carrying forward of only the sum assured and relief on pre-existing diseases (PED). Other issues will be as per the terms and conditions of the new insurance company's products.
Dr P Nandagopal, CEO & managing director, IndiaFirst Life Insurance, said portability should help customers in both intra-insurance company mobility (from one plan to another) and inter-insurance company (from one insurer to another). Insurers who are long-term players would not be affected adversely by health insurance portability.
Moneylife Foundation will present a detailed note to IRDA on the round table discussion with clear suggestions for implementation of portability.