We are made scapegoats, say jailed PWC auditors

Four months after the revelation of a major fraud at Satyam Computer Services shocked corporate India, markets here have practically declared the scandal over. Satyam’s top managers confessed and were jailed, the board was fired, and the giant outsourcing company was sold.

But Satyam’s independent auditors, two partners from the Indian office of PricewaterhouseCoopers, say they are innocent and remain in prison, charged with multiple offenses, including dishonesty, cheating, falsification of accounts and using forged documents.

The auditors, who are technically in “judicial custody,” are luckier than most prisoners here. Their wives can bring them food from outside during their twice-weekly visits. But they receive few other privileges. They sleep on the floor in a cell with other inmates, in temperatures that often exceed 100 degrees.

In an interview in the prison’s dim, noisy, concrete visitor’s hall this week, the accountants said they were scapegoats for a system that failed to catch years of wrongdoing. “I’ve been 31 years in this profession, and I have never seen auditors being booked,” said Subramani Gopalakrishnan, one of the jailed auditors and the founder of the PricewaterhouseCoopers office in Hyderabad. He yelled through three fences in the room. Prisoners pushed against one fence. Visitors – lawyers and wives with babies – pressed against another, and a third occupied a garbage-strewn no man’s land between the first two.

PricewaterhouseCoopers audited Satyam’s books worldwide from 2001 until the company’s founder, B Ramalinga Raju, confessed in January that he had been manipulating the accounts for years and that more than $1 billion cash on the company’s balance sheet did not exist.
Subsequent investigations revealed falsified bank balances, depository receipts, invoices and even bank letterhead used to bolster the fake accounts. Raju and some of the other top managers, who have confessed to crimes and are awaiting trial, are also in Hyderabad’s prison, but in separate quarters from other prisoners.
PricewaterhouseCoopers, facing numerous shareholder class-action suits and investigations, is under intense pressure to prove that its partners were not complicit. But a preliminary report from India’s Central Bureau of Investigation accuses the auditors of “consciously” overlooking accounting irregularities and “knowingly” certifying inflated and falsified data. In a petition for bail for the partners, PricewaterhouseCoopers said that the government had “no material or iota of evidence to even remotely suggest” that the partners “had any knowledge” that Satyam documents were falsified.

Fooling firm’s board

Raju’s “carefully crafted image” and political connections fooled the company’s board, India’s regulators and everyone else, Gopalakrishnan said from prison. In retrospect, the only thing he might have done differently, he said, would be to be more aware of the pressure on Indian outsourcing companies like Satyam to grow, and rely less on their employees to provide copies of the company’s bank balances. The other PricewaterhouseCoopers partner, Srinivas Talluri, a youthful 48-year-old with wire-rim glasses, is trying to maintain his professional mien behind bars. In the interview, his hair was neatly brushed, he carried a notepad and a plastic water bottle and his T-shirt was so smooth it seemed ironed.

He said his two children had not visited him during his four-month prison stint because he did not want them to see him behind bars. He recently offered to check the accounts at the prison’s canteen, just to keep his mind sharp. “The whole world believes that preventing and detecting fraud is my responsibility,” he yelled through the wire fence. “No concerns were ever brought to us by anyone.” He said he “could not imagine” the company would forge depository receipts, or balances on fake bank letterhead. Banks in India are not required to give balances directly to auditors, he added. Accounting experts say that while authorities may be treating the PricewaterhouseCoopers partners particularly harshly, making an example of them may prevent more serious repercussions for the country’s economy and even the audit firm itself. “You can say it is a little unfair they are awaiting trial in prison, but at the same time it is part of a system of action that seeks to preserve investor confidence and limit collateral damage,” said Sudhakar Balachandran, an associate professor of accounting at Columbia Business School in New York. Talluri and Mr. Gopalakrishnan provided more than 50,000 pages of documents from their office to investigators and sat for numerous interrogations, according to their bail petitions. PricewaterhouseCoopers maintains that the two partners are not a flight risk and keeping them in prison “constitutes a pretrial punishment,” the bail plea said.

The auditors’ wives say they have been doing their best to keep a brave face for their husbands, and spend a lot of time praying. Right now, “even God is not with us,” said Gopalakrishnan’s wife, Jaya Lakshmi.