PricewaterhouseCoopers India will pay the piper for failing to notice some $1 billion in fictitious cash balances in an audit of Satyam Computer Services, reports the Washington Post.
As a result of the fraud and negligent audit, PwC's Indian affiliates will pay $7.5 million in penalties to the US Securities and Exchange Commission (SEC) and the regulatory board set up in the United States to oversee auditors. Satyam settled SEC fraud charges Tuesday by agreeing to pay a $10 million fine. It neither admitted nor denied wrongdoing.
Quoting the SEC, the paper outlines the details of the fraud and PwC's failures as follows:
- The Satyam debacle came to light in 2009, when the company’s chairman confessed to inflating the company’s financial results.
- When the fraud was revealed, the price of Satyam shares plummeted and institutional investors in the United States lost more than $450 million.
- To pull off the fraud, Satyam chairman Ramalinga Raju created more than 6,000 bogus invoices, including bills for nonexistent customers.
- Satyam also gave the auditors phony documents that purportedly verified its bank balances.
- Some banks sent the auditors information that should have raised questions. For example, Citibank sent the auditors confirmation of a Satyam balance of about $330,000 while Satyam provided documentation purporting to confirm that it had about $153 million on deposit at Citibank.
- Although a PricewaterhouseCoopers partner warned the auditors that they needed to check the bank balances themselves, the audit team “failed to take any corrective action."