SBI, Wipro, Sesa Goa cases are more warning signals for auditors, regulators

The three cases described in separate news reports today, underline the continuing worries over corporate checks and balances

News reports today highlighted cases against three big names in the Indian corporate world that should be a wake-up call for companies, auditors and regulators. They are State Bank of India (SBI), Wipro and Vedanta-owned Sesa Goa, all three dogged by wrongful accounting that was apparently ignored by the auditors.

These cases are all the more significant in the context of the Satyam Computer fraud, India's biggest corporate fraud that was revealed in January 2009.

SBI was named in one of the reports today, for deviations the Reserve Bank of India (RBI) has detected in the sanction of bridge loans to some telecom companies. Some telecom firms are under investigation over the out-of-turn allocation of lucrative licences.

According to the report, SBI sanctioned a bridge loan of Rs2,500 crore to Unicor without identification of any financial institution for part-financing capital expenditure, pending tie-up of long-term project finance. Also, there was no committed financial tie-up at the time of disbursement of the money, and the roll-out should have been completed within a year of getting the licence in February 2009.

A year later, SBI sanctioned a regular term loan of Rs9,475 crore for the entire project, Rs2,850 crore of which was to replace the earlier bridge loan even when there was no committed tie-up in place. While the remaining Rs6,625 crore was not released, the bridge loan rolled out till December 2010.

Similar bridge loans/bank guarantees were extended to Loop Telecom (Rs725 crore), Datacom Solutions (Rs1,100 crore), Swan/Etisalat (Rs395 crore) and they were either adjusted against regular loans later on, or rolled over. Reliance Communication was sanctioned an unsecured corporate loan of Rs2,500 crore as capex, without any assessment of the credit requirements, even when unsecured loans of this scale were simply not permitted.

The Wipro embezzlement case has gone a step further, with the US Securities and Exchange Commission (US SEC) raising doubts about the competency of company's auditors. According to a report, the US SEC has asked Wipro to prove that its auditor, KPMG India, is independent. In the event that the IT firm is not able to fulfil the directive, it could have to appoint a new auditor and even get its business books audited all over again. Wipro had delayed filing its annual report for 2010 with the US regulator due to an investigation into alleged embezzlement of an estimated Rs32 crore, by one of its employees.

In the third case, the Ministry of Corporate Affairs' Serious Frauds Investigation office has reportedly recommended the prosecution of mining company Sesa Goa on nine counts, for over-invoicing imports by Rs14.60 crore, sales by Rs42.51 crore, exports by Rs1,002 crore and excess payment of agency commission of Rs40.60 crore. The fraud office has also accused the company's independent directors and statutory auditors for not co-operating in the investigation and recommended that they be prosecuted as well.

These are serious deviations constituting misdemeanours by responsible officials of the companies' managements and dereliction of duties by the statutory auditors that does not augur well for corporate governance. Something, that the auditors' body, the Institute of Chartered Accountants of India, will have to look at closely as will the regulators, the RBI and the Securities and Exchange Board of India.

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