|Rediff India Abroad Home | All the sections|
Discuss | Email | Print | Get latest news on your desktop
The Rediff Interview/Dr Anil Lamba, founder-director, Lamcon School
'Scams can never be fully stopped'
January 19, 2009
"Finance is one of the most misunderstood subjects and there is tremendous amount of insecurity when it comes to appreciating and interpreting numbers," says Lamba.
Lamba is a practicing chartered accountant and founder-director of Lamcon School of Management, located at Pune. He has written a book on finance management, titled 'Figure out the world of Figures'. He teaches extensively and his clients include corporations across the globe.
"Scams can never be fully stopped. There will always be brilliant fraudsters who will find newer ways. The need is for utmost vigilance, diligence and honesty on the part of those who are entrusted with the job of regulation and auditing," he explains.
Lamba shares his views on the need for good financial management and how Ramalinga Raju's confession itself could be false and misleading, in an interview with Manu A B.
Companies hire professionals with years of experience, how is it then that financial mismanagement becomes the main reason for business failures?
This happens principally because of the wrong notion held by most people that finance management happens in the finance department. The fact is that financial management is the responsibility of every individual in the organisation. A decision taken by the sales-person on the field as to the price at which the product is to be sold or the period of credit to be offered to the customer is a financial decision.
How aware are the company's top management about financial management?
Even though blame should be shared by everybody who is guilty of mismanagement, to a large extent the blame does lie with the top management. It is their responsibility first to understand the importance of 'Good Finance Management' and then ensure that requisite training is provided to their executives and employees to empower them to take financially sensible decisions.
To say so would be generalizing it too much. I think there are large number of responsible and capable CFOs who would not do so and who do appreciate how fraught with risk it could be. In most cases, there would be checks and balances to verify what the juniors have done before they would sign. But then there are also CFOs like Srinivas Vadlamani (of Satyam) who has (allegedly) confessed to blindly signing the balance sheets.
Yes, I agree that the Satyam episode has shaken investors' confidence in audited financial statements. Reviving this confidence is going to be a slow process. It will now depend on how quickly and effectively the government takes steps to get to the truth, the circumstances due to which PwC failed in their duties, perhaps changes in the regulatory mechanism to ensure such frauds are not repeated and demonstrable and transparent good corporate governance practices amongst corporations.
It is very difficult if not impossible for a fraud of this magnitude to occur without either the complicity or gross negligence of the auditors.
If found guilty, PwC can face action from Securities and Exchange Board of India (SEBI), from Institute of Chartered Accountants of India (ICAI), financial penalties and blacklisting, at least from India.
How can a fraud of this nature go unnoticed for so many years? What are the loopholes in the system?
It seems quite inconceivable that the fraud has gone unnoticed for so many years. But then we are basing everything on Raju's confession alone. What if the confession itself is untrue and/or misleading?
While there definitely is merit in delinking promoters from management, there are also examples of promoter-led corporations which are doing very well.
I'm not too familiar with what Maytas has done and why. But Satyam has inflated its profit which could be for various reasons - to impress investors, to attract more funds, to indulge in insider trading, to get bank facilities, for Mr Raju to personally raise funds against inflated value of his share-holding etc
They are similar in that both are very large corporate frauds, committed through falsification of accounts, leading to many individuals getting immensely rich at the cost of shareholders' money, insider trading taking place, the auditors not performing their duty with honesty.
What all does an auditor check in the company's account books?
The auditor has an elaborate procedure to follow strictly. The auditor must check everything necessary so as to reach a conclusion that the financial statements represent a true and fair view of the financial affairs the company.
Do accounting practices in the world, and especially in India, need overhauling? What one or two important changes would you like?
While accounting and reporting practices must be constantly reviewed and improved upon, I think the greater need is for auditors and regulators to exercise more diligence in the execution of their duties. I'm not sure that India needs a Sarbane Oxley like Act.
Scams can never be fully stopped. There will always be brilliant fraudsters who will find newer ways. The need is for utmost vigilance, diligence and honesty on the part of those who are entrusted with the job of regulation and auditing.
My advice to companies - In the long run, honesty is the best policy.
To auditors - not doing your duty conscientiously is a crime against your profession, against the shareholders who have entrusted you to protect their interests, and against the investor community in general. One act of dishonesty serves to discredit the entire profession and shatters the confidence of people in all financial statements. You owe it to your profession and your clients to honestly perform your duties.
Do you think India Inc's image is badly hit by this? How can we restore confidence among people?
India Inc's image has definitely been hit. But we need to remind the world that the Satyam is an aberration and that just as Enron does not represent corporate America, Satyam does not represent corporate India.
Email | Print | Get latest news on your desktop