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For Satyam Auditors, an Ordeal Before Trial
June, 02nd 2009

Behind the hulking, metal-studded front door of Hyderabads Central Prison live more than 900 men being held in connection with crimes ranging from pick-pocketing to murder. And then there are the two accountants.

Four months after the revelation of a massive fraud at Satyam Computer Services threw corporate India into turmoil, markets here have practically declared the incident over. Satyams top managers gave detailed confessions of their crimes and were jailed; the board was fired; and the giant outsourcing company was sold. Foreign investors are even flocking back to Indian stocks.

But Satyams independent auditors, two partners from PricewaterhouseCoopers who maintain their innocence, remain in prison. They, like Satyams managers who confessed, have been charged with multiple offenses, including dishonesty, cheating, falsification of accounts and using forged documents.

Last Monday, their seventh appeal for bail was denied.

In an interview this week in the prisons dim, noisy, concrete visitors hall, the accountants said they have become scapegoats for an entire system that failed to catch years of wrongdoing at Satyam.

Ive been 31 years in this profession, and I have never seen auditors being booked, said Subramani Gopalakrishnan, one of the two jailed auditors and the founder of the PricewaterhouseCoopers office in Hyderabad, speaking in a hoarse voice from behind three layers of wire fence in the low-ceilinged visitors room. Once we come out, we are confident of our case, he said.

Visitors to the medieval-looking prison stand clinging to one layer of fence in a long, dark hall. Legal advisers, friends and wives with howling babies converse with the prisoners by yelling across a litter-strewn gap and more metal fence, struggling to be heard over the din of others. The prisoners shout back in reply, often clinging to their side of the fence to get as close as possible to their guests. PricewaterhouseCoopers audited Satyams books worldwide from 2001 until the companys founder, B. Ramalinga Raju, confessed in January that he had been manipulating the accounts for years and had fabricated more than $1 billion in cash on the companys balance sheet.

Subsequent investigations revealed falsified bank balances, depository receipts, invoices and even bank letterhead used to bolster the fake accounts. Raju and some of the other top managers, who have confessed to crimes and are awaiting trial, are also in Hyderabads prison, but in separate quarters from other prisoners.

PricewaterhouseCoopers, facing numerous shareholder class-action suits and investigations, is under intense pressure to prove that their partners were not complicit in any way. But a preliminary report from Indias Central Bureau of Investigation alleges that the auditors consciously overlooked accounting irregularities and knowingly certified inflated and falsified data.

In a petition for bail for the partners, PricewaterhouseCoopers said that the government has no material or iota of evidence to even remotely suggest that the partners had any knowledge that Satyam documents were falsified. The Central Bureau of Investigation did not respond to requests for comment for this article.

Other partners at PricewaterhouseCoopers say that they believe Satyams auditors are not guilty of any conspiracy. If they had been involved, we would have taken them out and shot them ourselves, said one PricewaterhouseCoopers partner who has reviewed the jailed partners ?Satyam audits.

PricewaterhouseCoopers has said repeatedly that there was no evidence that the two auditors were complicit in the fraud. After the fraud was disclosed, the company formally withdrew its opinions on Satyams financial statements and said it would make a number of sweeping changes to re-emphasise quality, including replacing the management in its ?Hyderabad office.

Rajus carefully crafted image and political connections fooled the companys high-profile board, Indias regulators and everyone else, Gopalakrishnan said from prison. In retrospect, the only thing he might have done differently, he said, would be to be more aware of the pressure on Indian outsourcing companies like Satyam to grow, and rely less on their employees to provide copies of the companys bank balances.

Hyderabads central prison, opened in the 1800s and surrounded by high watchtowers and a concrete wall, is no country-club jail for white collar criminals. Many of the inmates are too poor to afford an attorney to plead for bail.

The PricewaterhouseCoopers auditors, who are technically in judicial custody, are luckier than most their wives can bring them food from outside when they visit twice a week. But they get few other privileges, and sleep on the floor in a cell with other inmates, in temperatures that often exceed 100 degrees Fahrenheit, or 38 degrees Celsius, this time of year.

The Central Bureau of Investigation has amassed more than 400 witnesses who are expected to be called in any trial involving Satyam, meaning court cases could run for years.

The other PricewaterhouseCoopers partner, Srinivas Talluri, a youthful 48-year-old with wire-rimmed glasses, is trying to maintain his professional mien behind bars. In an interview this week, his hair was neatly brushed, he carried a notepad and a plastic water bottle and his T-shirt was so smooth it seemed ironed. He said his two children have not visited him during his four-month prison stint because he does not want them to see him behind bars. He recently offered to check the accounts at the prisons canteen, just to keep his mind sharp. The whole world believes that preventing and detecting fraud is my responsibility, he yelled through the wire fence. But the responsibility belongs to everyone from the companys board and audit committee to regulators to even the governments income tax department. No concerns were ever brought to us by anyone, he said.

I could not imagine that the company would present forged depository receipts, Talluri said, or balances on bank letterhead that were false. Banks in India are not required to give balances directly to auditors, he added, and the company needs to give the bank permission to hand those figures out. So some of the documents supporting Satyams bank deposit claims naturally came through the company itself, he said.

Accounting experts say that while authorities may be treating the PricewaterhouseCoopers partners harshly in this situation, making an example of them may prevent more serious repercussions for the countrys economy and even the audit firm itself.

You can say it is a little unfair they are awaiting trial in prison, but at the same time it is part of a system of action that seeks to preserve investor confidence and limit collateral damage, said Sudhakar Balachandran, an associate professor of accounting at Columbia Business School in New York. Nonetheless, the auditors certainly should have done more leg work, Balachandran said.

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