Satyam Back in Business

Curiously enough, Satyam seems to be back in business, although under a new company name Mahindra Satyam. One may remember earlier this year, the chairman Ramalinga Raju resigned after admiting to having falsified earnings and assets for several years which caused a hole of 50.4 bln rupees (1.03 bln dollars), Bloomberg story here.

Ramalinga Raju and a few others a currently still under investigation and a court approved that the Indian Central Bureau of Investigation (CBI) can perform “lie detector and brain mapping test[s]” on them. (WTF,  is a brain mapping test? Probably an MRI, but not sure)

Writes the Hindustan Times:

The CBI told the state high court last month that Ramalinga Raju also diverted and misappropriated funds of Satyam through foreign bank accounts. In a written submission during the hearing of bail application of former auditor S. Gopalakrishnan, the CBI said it sought Interpol’s help to identify the end users of these funds.

Obviously Satyam has passed the rite of passage test of the corporate state and has demonstrated that it is willing to cook the books to please its customers, who can then rightly claim that outsourcing was a success because it made them save money and increase profits (and bonuses with that, but for some reason they never say that out loud).

Among customers of Satyam are Nestlé for its outsourcing GLOBE projects and now Glaxo. As we read again in the Hindustan Times:

Mahindra Satyam, the renamed Satyam Computer Services, said on Thursday it had signed a 5-year multi-million dollar support contract with GlaxoSmithKline Plc.Satyam said it will provide SAP and other critical systems support to Glaxo’s businesses across the world.
Satyam said it had been working with Glaxo since 2002 in providing IT development and support services.

Satyam also seems to have a long an prospering relationship with PwC. According to re: Auditors, Satyam was instrumental to PwC to staying in the systems integrator business, when officially it had to stay out of it. As Francine McKenna writes:

PwC skirted the issue of the non-compete for a while by developing Advisory (consulting) engagements focused on managing risk and internal controls. Their Advisory practice during the greatest period of SOx demand, 2002-2005, existed largely to service Sarbanes-Oxley engagements. Small moves to align with former in-house technology vendors such as Versa and alliances with SAP, Oracle, and Microsoft gave PwC a taste again of the bigger fees. Unfortunately, almost anyone who knew anything about selling or managing a consulting project longer than a year or with fees over a million, especially if it touched on anything technology related, had left for IBM or other true consulting firms.When the decision to go back big was made, primarily because of the pressure on Sarbanes-Oxley fees after Auditing Standard 5 was enacted, PwC had to find a way around their own weakness in technology leadership, lack of experienced resources, and the constraints of the IBM non-compete agreement.Enter Satyam.

The problems with that arrangement are the following writes McKenna (emphasis mine):

So… What’s wrong with this shiny, happy picture? How do they flout the rules? Let me count the ways…1) PwC is denying to its own partners the kind of work it’s getting ready to do for clients and the additional risk the firm will be exposed to. PwC leadership is soliciting their obeisance, in the end, for the glory and enrichment of a few partners for only a little while.2) Potential “Advisory” clients are being told by analysts and via other public relations efforts that PwC is a viable choice for systems integration/implementation projects. PwC is now actively recruiting SAP, Oracle, and other technical specialists as well as planning on acquiring them from BearingPoint. This is despite the fact that PwC still isn’t being honest with itself about whether it’s in the systems integration business or not, to what extent, and for how long.This is the second time around. Will another regulatory push or a big litigation loss push them to reverse course again and sell the consulting practice as soon as they’ve fattened the calf? And what of the potential exposure to a client who chooses a Big 4 systems integrator given the quite uncertain economic landscape in many industries? Your Big 4 audit firm systems integration partner today may unexpectedly become your auditor by acquisition or default tomorrow.

3) Satyam was, until the scandal broke in December of 2008, Price Waterhouse India’s audit client. The analyst report implies that Satyam was a strategic partner to PwC, globally enabling them to bypass both the constraints of their non-compete with IBM and to provide a viable solution for their lack of technical expertise and technical bench strength. If true, this is abhorrent, especially given subsequent events that occurred at Satyam

PwC appears to have had at least a strategic relationship, if not an ostensible prime/sub relationship with Satyam, for Idearc and perhaps other projects while at the same time enabling via negligence or worse the humongous fraud that is Satyam. The two Price Waterhouse India partners responsible for Satyam’s audit are still in jail.

Satyam was a global engagement for PwC by virtue of Satyam’s presence in the US via US-based operations and clients and issuance of their ADRs on the NYSE. Satyam’s management, promoted by PwC as a strategic partner for systems integration engagements and a recommended choice for IT outsourcing, is now being called thieves and liars by PwC’s Chairman.

On the Satyam scam, DiPiazza said: “What we understand is that this was a massive fraud conducted by the (then) management, and we are as much a victim as anyone. Our partners were clearly misled.”

Did the strategic importance of Satyam as a systems integration partner and technical resource cause global PwC leadership to overlook, look the other way, or not take action on reports of poor quality or lack of independence by Price Waterhouse India partners and others? Did PwC leadership – US, global, and Indian- enable and perhaps promote complicity in the fraud called “India’s Enron” for the sake of their consulting business strategy? Did Satyam pay PwC for the privilege of being included in these deals by agreeing to exorbitant, higher than market audit fees as has been reported?

The IT outsourcer chosen by Idearc, after the project was completed by PwC-Satyam was – Satyam! Were there other incentives, financial and/or strategic, for PwC to encourage this choice with their client?

Remember also, The PCAOB inspected several Indian firms and their clients in the Spring of 2008. Per reports by the FT, PwC and Satyam were included in this list. PwC’s leadership would have known well in advance of this inspection that their audit client was going to be part of the inspection. They would have known before this meeting in July of 2008 if there were issues with Satyam that would embarrass them later if they used Satyam’s name in an Advisory sales piece. Their Advisory leadership did it anyway.

Well, I think there may have been other projects, I’d recommend digging Nestlé Globe, PwC and Satyam’s role in that project. From what I was told, right after PwC sold their consulting/systems integration part to IBM, Satyam people started to be brought in. Certainly no conncetion there, no no no.

Regarding the quality of the Nestlé accounting we need not have fear the auditor is not PwC, its KPMG.