Today, Honestly Lay Bare takes a stroll down the path where the worlds of criminal conduct and professional performance intersect.
However this time it is not a hindsight review of some dastardly crook or the analysis of yet another internal control failing that has caught our eye.
It is the arrest last Saturday of Mr VS Prabhakar Gupta
Mr Gupta was formerly head of Internal Audit at Satyam Computers.
Many will be aware that 2009 has not treated Satyam Computers well.
On 7 January 2009, company Chairman Ramalinga Raju resigned after notifying board members and the Securities and Exchange Board of India that Satyam's accounts had been falsified.
Raju confessed that Satyam's balance sheet of 30 September 2008 contained:
- inflated figures for cash and bank balances of US$1.04 billion.
- an accrued interest of US$77.46 million which was non-existent.
- an understated liability of US$253.38 million on account of funds was arranged by himself.
- an overstated debtors' position of US$ 100.94 million).
Raju claimed in his confessional letter to the Exchange that neither he nor the managing director had benefited financially from the inflated revenues. He claimed that none of the board members had any knowledge of the situation in which the company was placed.
**
The Sunday Economic Times of India (proof again that we at Honestly Lay Bare read widely!) reported on Sunday that the Indian Central Bureau of Investigation (CBI) arrested Mr Gupta with breach of trust, forgery, cheating (lucky the French football team isn't under Indian jurisdiction!) and fabrication of accounts.
In the confessional letter mentioned above, the founder had said that Prabhakar Gupta, among few other senior executives were ‘unaware of the real situation as against the books of the accounts.’
Now - for the avoidance of doubt - we have absolutely no idea whether Mr Gupta did what the CBI is saying that he did.
What we do have an opinion on is what was included in the claims against Mr Gupta:
The CBI has contended that despite being aware of the irregularities and heading the internal audit team, he did not inform to the audit committee
These 25 words surely must be some of the most intimidating words ever written about the profession and practice of internal audit.
Go back and have a read of it and think of the words' implications.
As part of the allegation against Mr Gupta the CBI has lifted not only the corporate veil but some would say (well at least us!) that they have exposed all future Indian Chiefs of Audit to a dangerous precedent.
Mr Gupta is being charged for exercising his professional judgement as to what should or should not be reported to an Audit Committee.
If Mr Gupta is guilty of fabrication (and remember that we are not saying that he is ... this is a 'what if') of course he is not going to tell the Audit Committee about the deliberate inaccuracies (and to be honest we here at Honestly Lay Bare dont really have much of an entry for this week!).
If, however, Mr Gupta was ignorant of fabrications or did not consider any irregularities to be sufficiently material to be reported, he is facing jail time for doing what all Heads of Audit do before every Audit Committee.
Should Heads of Audit be above the law?
Of course not.
But should Heads of Audit be held to a standard that criminalises the exercising of their professional judgement.
If you think so we have started down a slippery slide that will be ultimately fatal to the profession we hold dear.
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