This week’s high-tech crime is a new twist on an old favourite: securities fraud. It recently emerged that one of India’s largest outsourcing firms, Satyam Computer, had ‘overestimated’ its cash reserves and asset values by around 50 billion rupees (AUD $1.38bn). According to the company founder and chairman, this was ‘purely on account of inflated profit over a period of several years’. The fraud came to light when a recent asset acquisition fell through, forcing the company to acknowledge the ‘attempt to fill fictitious assets with real ones.’ According to a taped confession to Indian police by the chief financial officer:

Srinivas said he suspected that something was wrong when the company was late with bills, but Satyam’s chairman and managing director forbade him from using fixed deposits to pay them. He was told to “manage” the bills with operational cash instead, he said. That situation occurred continuously for the past five or six years, he said. …

Srinivas said he believed the company’s fixed deposits were “unreal” and “managed” and that they were a result of an “understanding” between management and the “audit section.”

Price Waterhouse, the Indian division of PricewaterhouseCoopers, was the external auditor for Satyam. The firm has come under fire since the Satyam fraud came to light: India’s accounting board is investigating Price Waterhouse’s work on Satyam, and investors in the computer company are considering lawsuits against the auditor.

Satyam Computer (whose name, ironically enough, means ‘ultimate truth’), is now being called the Indian Enron, and the company’s stock has gone into freefall, down 91 per cent on the NYSE. While some investors were comforted by the appointment of a new board yesterday, some analysts have suggested that the problems lie with management and a culture of poor corporate governance. Good luck to PwC, too — they’ll need it!

If ever Australian businesses needed it, this is a timely reminder of the dangers associated with offshoring their IT and other core infrastructure. What will happen to Satyam’s ASX200 customers if, as seems increasingly possible, it becomes insolvent?