1. Satyam Computer scam: How India’s biggest accounting fraud unfolded

Satyam Computer scam: How India’s biggest accounting fraud unfolded

Amid the ongoing probe, on February 2, Mahindra & Mahindra-owned Tech Mahindra expressed interest in acquiring Satyam.

By: | Updated: April 10, 2015 12:16 PM
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Embattled outsourcing giant Satyam Computer Services Ltd founder B. Ramalinga Raju, right, is seen through a car windscreen as Criminal Investigation Department takes his custody, in Hyderabad. (Express Photo)

B Ramalinga Raju, who was sentenced by a CBI court on Thursday to 7 years in jail, founded Satyam in 1987 and made it India’s fourth largest IT firm, which reaped huge profits after making solutions to tackle the Y2K crisis before falling from grace. Shruti Srivastava explains how the country’s biggest accounting fraud unfolded.

How did the Satyam scam unfold?

On January 7, 2009, B Ramalinga Raju — the then chairman and also the founder of Satyam Computer Services — wrote a letter to the company’s board, wherein he admitted of fudging the accounts of the firm to the tune of over Rs 7,800 crore. The letter, which was also marked to the Sebi chairman and stock exchanges, stated that apart from inflating the profits, Raju had understated the liability, accrued non-existent interest, overstated debtors and inflated cash and bank balances. According to his admission, “The company had to carry additional resources and assets to justify a higher level of operations thereby significantly increasing the costs. Every attempt made to eliminate the gap failed … It was like riding a tiger, not knowing how to get off without being eaten.” Apart from B Ramalinga Raju and his brothers B Rama Raju and Suryanarayana Raju, the scam involved seven other players – former CFO Vadlamani Srinivas, former PW auditors S Gopalakrishnan and T Srinivas, former employees G Ramakrishna, D Venkatpathi Raju and Ch Srisailam and former internal chief auditor VS Prabhakar Gupta. Earlier, Raju, lured by the boom in real estate had encouraged his sons to get into the sector and launched two firms — Maytas Infrastructure and Maytas Properties. His admission on January 7 was a result of an aborted Maytas acquisition deal by Satyam through which he was trying to fill in the fictitious assets with real ones.

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What actions were taken by the regulators?

Two days later, following the confession and the subsequent resignation of Raju from the company, the Andhra Pradesh Police arrested him and his brother B Rama Raju on charges of forgery and cheating while the ministry of corporate affairs announced the super-cession of the Satyam board. On January 10, the Company Law Board (CLB) barred the Satyam board from functioning and appointed government nominee directors on the board. During the probe, the Serious Fraud Investigation Office (SFIO) found the auditors and PW guilty while also pointing out that the independent directors were mute spectators while the fudging played out. The Institute of Chartered Accountants of India (ICAI) also found the auditors and CFO involved guilty of professional misconduct. After completing the disciplinary proceedings the accounting regulator barred the auditors involved in the scam. The case was later handed over to the CBI.

How was the firm salvaged? 

Amid the ongoing probe, on February 2, Mahindra & Mahindra-owned Tech Mahindra expressed interest in acquiring Satyam Computer. The government appointed AS Murthy as the new CEO and under him, the new board started the process of selling the firm. Sebi then gave its nod to sell 51 per cent stake in the company and the bids were invited. In April, through a public auction process, Tech Mahindra through its subsidiary VenturePay acquired Satyam and the entity named Mahindra Satyam was born.

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  1. V
    vignesh
    Apr 10, 2015 at 11:31 am
    Ban auditors not solution for this........ultimate responsibilty for accounts lies with company management.... satyam case..one of manition accounts was non -existence 5000 crore cash & bank balance in books. During audit ,company has submitted fraudulent FDs receipt worth Rs5000 crore to auditors...auditors were replied on these FDs ...practically auditors were unable to go to bank check whether company had deposited FDs.....this not an normal audit procedure that auditor can do.......these kind of fraudulent pratices can be found from through investigation
    Reply
    1. C
      Crusader
      Apr 10, 2015 at 12:17 pm
      maniting bank balances is a very serious forgery.
      Reply
      1. r Narayan
        Apr 10, 2015 at 9:45 am
        Will they at least now ban the big 5like auditors pwc etc as they charge big money and make big fraud. Similar was in u s also goldmann. Sachs I think.
        Reply
        1. Shri Soni
          Apr 11, 2015 at 9:15 pm
          The law enforcement agencies in India sleep,particularly in the case of public sector. A culture of impunity is created when people in power break the law, escape social or legal punishment, and then continue breaking the law. Impunity allows the powerful to get away with it – to break existing laws but also to exploit legal loops... During 2010-2013 those in a Public Sector Undertaking (PSU) head office mumbai deliberately misread the notice(s) of the Central Information Commission (with copy to appellants ,e.g. the complainant) to attend video conference. The complainant witnessed systematic loss of public money of approx. Rs. 10000/- to 25000/- per person to claim habitual ,uncalled for Delhi tour to embezzle public money ..
          Reply
          1. T
            t p
            Apr 10, 2015 at 9:21 am
            What is happening to Yadav Singh Yadav Case ? Thousands of crores of Rs seized or forgiven as the person is close to both SP & BSP. All city development authorities be strictly audited by the selected honest auditors so that huge black money can be unearthed & India become a cash surplus nation.
            Reply
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