Internal audit at Satyam

New charges in the Satyam scandal were laid by India’s Central Bureau of Investigation, for “creating fake invoices to inflate revenues by US$94 million and forging company board resolutions to obtain unauthorised loans worth US$265 million” according to this story in Accountancy Age.

This comes after charges were laid on November 21 against the former Head of Internal Audit, VS Prabhakar Gupta, for the company, for “willful suppression of auditing irregularities.”

A lot of coverage in the blogs (primarily Dennis’ and Francine’s) thus far has focused on the role the external auditor PricewaterhouseCoopers played in the fraud, but Internal Audit arguably should’ve been better able to root out the fraud due to its closer familiarity with business processes.

It’s difficult to detect fraud in the best of circumstances, but when the charges involve suppression of irregularities discovered by internal audit, questions will be raised (and arrests made).

DNA (Daily News & Analysis), an Indian English language newspaper, provided additional detail on the arrest of the former Head of IA:

While the spokesman refused to divulge any further information about Gupta, sources in the agency claimed that the auditor had helped in falsifying accounts including inflating the overseas employees pay bill.

On top of this, the Internal Audit department received the Recognition of Commitment from the Institute of Internal Auditors in 2005, which according to the IIA was “available to all internal audit activities that submitted an application fee and met specific criteria in the areas of quality, outreach and professionalism, based on a point system.” The program was discontinued in 2006.

On the occasion, the now former Head of IA had this to say:

We are extremely happy with the recognition that our Internal Audit team has received on an international platform. Satyam is one of only 26 internal audit departments worldwide receiving this award in 2005 and it reinforces our commitment to meet the international standards in the concepts and approaches to audit function contributing to better corporate governance.

Satyam is now commonly referred to as India’s Enron.