Tis the Season (for admitting your Frauds)

There goes another one.

In what many across the globe are calling "the Indian Enron," the CMMI Level 5 software services company Satyam Computer Services LTD. confessed to perpetrating a massive fraud. According to their chairman, B. Ramalinga Raju, they've been inflating their earnings for several years to the tune of $1.6 billion.

I know, I know, this story is two days old.

However, the bit that may have passed unnoticed is the breaking news from The Times of India that Satyam recieved the ROC (Recognition of Committment) Award from the Institute of Internal Auditors USA (IIA) in 2006. And, the company is listed on the New York Stock Exchange (NYSE) and audited by PricewaterhouseCoopers (PWC).

Now, the ROC award was sunsetted by the IIA on January 1, 2006 so it isn't entirely clear how this worked, but it isn't exactly the reputation-building news I would liked to have heard as a Certified Internal Auditor.

The effect on the Indian economy is expected to be significant, but the effect on the $50 billion offshore outsourcing industry is likely to be even greater, according to the New York Times. The good news, evidently, for Americans is that US firms like Accenture and IBM stand to profit as companies struggle to find replacement service providers. Thomas L. Friedman will be up late this week assessing the impacts on the Flat World.

It also bothers me on a personal level. At RSA, we worked with Satyam, as well as Cognizant Technology Solutions. They both, particularly Cognizant because of their in-country representatives, did a good job.

Being a glass half-full kind of person, I choose to see this unfortunate news as a form of reveille for management, the audit committee, and the audit profession. It is time to get up, time to adequately fund the audit function, and time to let it actually operate in a risk-based and independent fashion.

I know I have Philip Ratcliffe's vote.

Mr. Ratcliffe is president of the Institute of Internal Auditors (UK and Ireland). He wrote a piece today (January 8) in the UK's Accountancy Age, urging the same. Having spent some time in the communications and public relations business, it is not surprising to me that his comments come at this time. Damage control is a worthy endeavor, but it doesn't make him wrong.

-- Prescott B. Coleman, CIA, CISA