The government seems to have reasons to strongly believe that telecom companies are cooking up their books of accounts to understate income and pay less license fee and spectrum usage fee to the government as per their revenue sharing contract ingrained in the operating license agreement. Incidentally, any understatement of revenue is bound to have an impact on a company's bottom line or the taxable income as well. That means such a company is robbing the exchequer not only on payment of shared revenue, but also on payment of corporate tax, dividend payment tax etc. The suspicion gained ground after the government went through the R-Com balance sheet some time ago to note the discrepancy.

Special auditors appointed by the Department of Telecommunications (DoT), Government of India, last year, to examine the books of accounts of a number of telecom companies have generally found 'nothing wrong' with the statements of accounts but noticed that these companies 'failed' to add dealers' margin for selling recharge coupons as part of their revenue. And, as such the companies did not pay the license fee on the additional revenue on this account to the government. According to these reports, Bharti Airtel's liability on account of such under reporting of revenue was Rs. 98 crore, Idea Cellular's Rs. 74 crore and Vodafone Essar's Rs. 188 crore. Among other major private sector players, whose additional license fee liabilities are yet to be fully ascertained, are Tata Teleservices, Aircel and Reliance Communications. The industry's contention is that the income from dealers' margin on coupon sales is more of a notional nature. The telecom tribunal also held the same view. And, therefore, no license fee is payable on such notional income. The government is not convinced. The government wants to get to the bottom of the matter by engaging CAG to look into the books of accounts and re-inspect the financial statements of all the telecom companies to ascertain the true picture of their revenue.

In an amazing development, the government's decision to involve CAG to re-examine the accounts books has been strongly contested by the industry, which says CAG has no audit jurisdiction over privately-held companies. CAG itself thinks otherwise. The government super-auditor says a 2002 official notification authorizes CAG to audit the accounts of telecommunications companies as the latter are required to share a part of the revenue with the government. Telecom companies are required to pay six to 10 per cent of their annual revenue as license fee and up to six percent as spectrum usage charges. Thus, underreporting of revenue could mean substantial loss of income to the government. Any loss of revenue to the government certainly falls under the purview of CAG audit although the power has not yet been exercised by the government auditor. The possibilities are that the industry may move the court against the DoT action. Bharti Airtel is said to have objected to the CAG review also on the ground that the nature of information being sought was confidential and sensitive from the competition point of view and falls beyond the company's obligations under the license agreement. Ironically, the strongest objection to CAG review has come from Bharti Airtel, which is indirectly held by the Singapore government through its equity participation in SingTel, Bharti's single largest corporate shareholder. The question is: will the Singapore Telecom (SingTel) management dare express a similar audacity to challenge its government's power and authority to inspect its accounts?

In America, the Government Accounting Office (GAO) and the Comptroller of the United States can order special audit of books of accounts of any joint stock company and public or private enterprise if they deem fit. No company can challenge these authorities on such grounds that such an exercise may lead to the leakage of competition sensitive information or cause inconvenience and extra-financial burden for the detailed review of the books of accounts. After all, the stakeholders, including the government, have right to ascertain the veracity of corporate accounts books when serious doubts are raised about their authenticity. Few will agree that corporate audited accounts project the gospel truth. For long, the auditor-client nexus has been a matter of concern for lawmakers and regulatory bodies of public accountants across the world. The government has a big role to play in this regard to ensure that corporate management objectives do not run counter to government and social objectives. Unfortunately, India's economic reform has failed to ensure the adherence to social responsibility, customer care and reliable presentation of financial accounts by business enterprises.

Whether a CAG review of books of accounts of telecom companies ultimately establishes any serious discrepancy or not, the government auditor can't be prevented from doing a re-inspection job to clear its doubt about the authenticity of the numbers. Corporate audit is a constant process. For listed companies, it is a quarterly requirement under the listing agreement with stock exchange. The quarterly results given are internally audited. Despite that companies are known to fudge their accounts with or without the involvement of their internal auditors and statutory auditors. If Price Waterhouse could overlook false financial statements in the erstwhile Satyam Computer's books of accounts for eight consecutive years, there is no reason to believe in the efficiency and truthfulness of auditors of telecom companies or for that matter of any company. Corporate greed is driving the society and the government crazy. It is basically exploitative of customers and the society. A hugely expensive TV advertisement by some telecom companies, offering mid-night talk plan to subscribers at two paise per six seconds for local as well as STD calls, hardly justifies the normal split-second SMS delivery cost to subscribers at Re. 1 for local and Rs. 1.5 for STD. Such business plans are misleading as well as exploitative of customers. In reality, only thieves, sex workers and nocturnal persons may find such plans attractive on a regular basis.

Now that the government has serious doubt about the revenue statements of telecom companies, it must go ahead with the proposed CAG review of the books of accounts of these firms at least to clear the air of thick suspicion. The cheating on revenue-linked payment of license fees, usage charges, cess, royalty, etc. to the government by business corporations is rather common in India. The latest financial scandal involving the fudging of accounts by a host of private mining companies in the Bellary-Hospet region in South India is believed to have cost the government in excess of Rs. 5,000 crore in underrecovery of collection of cess and royalties. Like those telecom companies, these private sector mining enterprises are alleged to have understated the revenue in their books of accounts to deprive the government of its rightful share of their mining income. It is disgraceful, but it is there. A lenient attitude on the part of the government towards such offences will only encourage more corporate financial corruption, which is unfortunately growing in India despite various tax reforms. (IPA Service)