Corruption and flow of Indian moneys to Zurich — both were assured continuity by the UPA Government through the new Companies Bill, which revealed no intent of preventing more Satyam scams from recurring
Eight months have passed since the Satyam Computers scandal, but public memory, being notoriously short, has given the benefit of time and space to the real culprits behind the multi-billion dollar loot. The promoter of the fraud company, B Ramalinga Raju, may be in jail, but the country's largest financial crimes operation, the brotherhood of chartered accounts, with Price Water House at the apex, has merrily avoided scrutiny.
This week, the government reintroduced the Companies Bill in the Lok Sabha after a hiatus of 10 months. It is supposed to be based on the recommendations of an expert committee headed by JJ Irani, the former Tata Steel chairman, and seeks to make firms and their promoters responsible for their actions. But this is far from accurate. Irani’s most important proposal, institutionalising the whistleblower in corporate, was given the go-by. Irani had stated on record: “If the CEO and CFO of a firm get together to do a fraud, there is nothing an independent director can do to detect or prevent it, even if they are professors of corporate governance. Companies must install a confidential whistleblower system."
The new Companies Bill, which seeks to replace the 53-year-old Companies Act, hardly scratches at the surface of the deceitful system that has built up over the years and has manifested itself through various inglorious episodes like Harshad Mehta, the MS Shoes scam, the murder of IIT engineer Satyandra Dubey and Satyam. Irani's call for a whistleblower system assumes significance because the UPA
Government has studiedly avoided implementing this long-felt demand of honest corporate houses. Neither the Companies Bill of 2003 nor its present avatar has clauses institutionalising whistleblowers. Of course, it may be argued that even whistleblowers can be reduced to ciphers — Satyam, irony of ironies, had one since 2005. However, that may be countered saying the lack of a firm law giving the whistleblower legal backing was responsible for the duplicity carried out by the Raju empire.
The Satyam scandal has shaken the country's morale and its financial system stands exposed before the whole world. The rotten core of the chartered accountancy profession was laid bare before the public when PW House and Coopers' hand-in-glove role in cooking books over several years became known. The bubble burst only when the fraud became too huge to handle in a market hit by recession. Had the global economy not been hit by the biggest calamity since 1929 in October 2008, chances of the goings-on at Satyam coming out were remote. Clearly, Satyam was the tip of the iceberg.
In my opinion, there is hardly a balance sheet or profit and loss account filed with the Income Tax department which is an honest reflection. Financial discipline, corporate governance and tax reforms are oft-repeated jargons at seminars. But of what use are they if the underlying criminality of the financial sector is not addressed?
Routinely, there are two occasions when the corporate world cooks financial documents. One, when they have to file income tax returns, and second, when they have to put on a show before shareholders and the public that all is hunky dory in their company. It is usually seen that when a sinking or underperforming company is trying to find a buyer, its performance improves dramatically in the books. All sorts of fraudulent mechanisms are adopted to shine the face of the company and all is done by the auditors at the behest of the owners and board members of companies.
In the aftermath of the scam coming to light, we had heard that PW House and Coopers would be banned for the malpractices it adopted in league with Raju. But nothing happened to the high-profile auditors. Earlier this week, Minister of State for Finance SS Palanimanickam declared in a written reply in the Lok Sabha that Satyam's outstandings with the Income Tax department is to the order of Rs 541 crore.
I kept on looking for something substantive in the findings of the investigators into the Satyam scandal, but I learnt nothing that I didn't know. Auditors are hired by the companies to audit their accounts and paid for their services. The job of a chartered accountant is to whet a company's accounts as an independent observer upholding the Laws of the land. But, the whole system has been distorted. Today, the only loyalty shown by the auditor is to his client. Their engagement is completely at the mercy of the companies and, in a competitive environment, they perform all kinds of financial skullduggery to remain in the good books of their clients. That even PW House and Coopers could fall in line was the only education for old cynics like me.
To understand the intensity of the rot afflicting the system, wide reforms are necessary. The process of correction must begin at the stage when the chartered accountant is being groomed for his career. Let’s just know who these auditors are and how they become qualified chartered accountants. The Institute of Chartered Accountants of India (ICAI) is entrusted with a larger-than-life responsibility. ICAI has the responsibility of creating professionals who get paid by their hirers-companies to keep their accounts in accordance with the rules and provisions enacted by the government of India. It would be worthwhile to have a look at the kind of training and education these professionals are imparted with by ICAI before we expect morality from them. The CA course involves theoretical self-learning (by rote) and articled training under a qualified chartered accountant. But there is complete disconnect between what they learn in their articled training and what is required to clear the theoretical papers i.e. they draw no help from their articled training to clear their theoretical papers.
Though ICAI charges high fees from students, it provides no class room teaching to equip them with the fine nuances of financial auditing. The only meaningful interaction that a student has on the way to become a CA, is with the senior CA who gives the young rookie a chance to get mandatory articleship.
It is high time the government takes a close look at what these up coming auditors are taught at that early stage. How to make fake balance sheets, fake profit and loss accounts, fake account books, fake vouchers, enter fake entries, and manage fake receipts and what have you. In short, a new generation is equipped with dangerous weapons to sabotage the economy of the country. They are trained to make a Satyam happen every day. How can the graduates of this institute of lies be expected to be loyal to the government of India. Articleship is all about picking up the tricks of a trade that thrives on loopholes.
In short, the ICAI is producing generations of white collar criminals. The country's financial system is hemorrhaging. Our credibility before the international investor community is eroding. Under the circumstances, it is futile to talk of Swiss bank accounts. The need of the hour is bold reforms. But, sadly, the Finance Bill introduced by the UPA Government, is nothing short of ridiculous.
-- The writer is a Supreme Court advocate and an alumnus of IIT Delhi. He can be reached at firstname.lastname@example.org)