When it comes to corporate fraud, it would appear that the United States does not have a monopoly. Last week the head of India’s fourth largest business process outsourcing firm, Satyam, confessed that he’s been cooking the books for years. The total damage: $1 billion!
What makes this incident particularly disheartening is that Satyam is listed on the New York Stock Exchange, meaning it is subject to the Sarbanes-Oxley Act. In addition, the Securities and Exchange Commission is still reeling from last year’s Bernhard Madoff scandal, where a massive ponzi scheme cheated businesses and investors out of $1 billion. Have our regulators been asleep at the wheel?
I understand how unfair it is to blame regulators for these problems. After all, anyone in accounts payable understands that fraud can occur even amidst the strongest internal controls. However, it is massive frauds like Satyam and Madoff that regulations like SOX were intended to prevent. I’d be lying if I said my faith in our existing regulators wasn’t just a little shaken.
On the other hand, perhaps these regulations are actually working quite well. Who knows how many potential Enron and WorldCom disasters have been foiled thanks to the intense focus on internal controls. While we have Satyam and Madoff today to worry about, perhaps it could have been a lot worse.
It becomes hard to think this way when the SEC’s New York watchdog Meaghan Cheung had the following to say. “Why are you taking a mid-level staff person and making me responsible for the failure of the American economy? I worked very hard for 10 years to make a career, and a reputation, and that has been destroyed in a month.”
The problem is that Cheung had reportedly been warned multiple times about potential fraudulent activities from Madoff. In fact, in 2006 she signed off on an investigation report giving him the all-clear.
As for the Satyam fraud, it managed to persist despite the supposed scrutiny of U.S. and Indian regulators. No one suspected anything despite the fact that the company’s profits grew phenominally efery quarter. Both the Madoff and Satyam frauds were only uncovered when the men perpetrating them felt the need to confess.
Like the old saying goes, hindsight is often 20-20. And while I can sit here and criticize our regulators for not catching these and other fraud cases on their own, the truth is that I don’t work for the SEC. And, as the news on both fraud cases continues to pour in – the head of Satyam was recently arrested by Indian police – I’m eternally grateful that I don’t have to deal with the cases myself. I am much better at being an armchair regulator.
Patrick Harbin is Editor of The Accounts Payable Channel and Assistant Editor of The Accounts Payable Network
