Reducing Expenses May Not Reduce Risk

More and more companies are looking for ways to reduce expenses and a popular method recently has been outsourcing.  While many benefits come with an outsourced relationship, so does increased risk.  Proper due diligence and carefully crafted service level agreements are essential.  However, with the recent fraud at Satyam in India, those activities may not be enough.  A recent article in CFO magazine highlights the problem. Here is a excerpt from that article.

The enormously inflated cash balances at Satyam have popped a hole in the reputation of the outsourcing market, which has grown from business offering solely tech business, to back-office work such as finance and accounting. "This has really shaken up the outsourcing industry," says Peter Allen, a partner and managing director for outsourcing advisory firm TPI. "The industry is built on relationships that imply some level of trust and confidence and integrity."

How comfortable are you with your outsourcing partner?  Have you assessed the risks with the relationship lately?  If not, Wheelhouse Advisors can help.  Visit www. WheelhouseAdvisors.com to learn more.

Financial Fraud Knows No Boundaries

Corruption and fraud on a massive scale knows no boundaries as we discovered again in the disclosure by global outsourcer, Satyam Computer Services, Ltd.  The company's chairman orchestrated the fraud by falsifying company accounts and inflating revenue and profit figures over several years.  In addition, the cash position of the company was most recently reported at more than $1 billion - an amount that was completely false.  The Wall Street Journal reported the following:

The news prompted concerns about corporate governance and accounting standards across Indian industry, especially since Satyam was audited by PricewaterhouseCoopers and had high-profile independent directors, including a Harvard Business School professor, on its board until recently. PricewaterhouseCoopers said it was examining Mr. Raju's statement and declined to comment further. Immediate comparisons were drawn to the watershed in U.S. corporate accounting and governance standards that stemmed from the Enron crisis.

"Satyam is now India's Enron. The independence of the board was already in question, now the auditors' complicity in what seems to be a multi-year misstatement of financials will also be explored," CLSA said in a note.  The chairman of the Securities and Exchange Board of India said Wednesday the unfolding fraud at Satyam is an event of "horrifying magnitude."

Much must be done to stem the tide of corruption and fraud in the corporate boardrooms and executive suites. Our entire financial system depends on investor confidence that is quickly eroding.  Strong internal control over financial reporting is essential and can be a source of competitive advantage in an environment such as this.  Visit www.WheelhouseAdvisors.com to learn how we can help you.