Satyam - An Accounting fraud!!
Here, I would like to share my views and analysis on Satyam scam.
Sources: ET, NDTV, Slideshare, YouTube. etc
To start with, What is "SATYAM?"
Satyam (Popularly know as) is a company set up by B.Rama linga raju in the year 1987 in P&T colony with 20 employees to provide IT Services.
Name of the comapany: Satyam Computers Pvt ltd
Chairman and founder: B. Rama linga raju
Co-Founder: DVS Raju (Brother-in-law of B. Rama linga raju)
Who is Rama Linga Raju??
He is populary known as SATYAM Ramalinga Raju. He was born in the year 1954, in Bhimavaram. He belongs to "Raju" community and a farming family.
Academic achievements:
Bachelor of Degree from Andhra Layola collge, Vijayawada
MBA from Ohio university, USA
How did such a small company (hardly 20 employees) become Market leader?
Here's the RISE of SATYAM..!!
In June-1991, it earned 1st FORTUNE 500 client.
On August 26, 1991 it was converted to Public limited company. In 1991, there was a New Industrial policy (Privitization of many Public sector units).
It went public in 1992 where it's shares were over subscribed by 17 times.
Objective of Public issue: To raise funds for Infrastructure, Software development center with modern equipment.
In 1993, Joint venture with Dun & Bradstrret Corp., U.S.A.
1993-1997: Opened office at various places in India, USA & Japan. Partnered with bussinesses in Australia, Canada and Europe
1999: Became one of the FASTEST growing IT companies in India. Issues Bonus shares to its shareholders.
2000: Satyam Manufacturing Technology, a joint venture between Satyam Computers Services and US-based TRW, has received a $200 million contract from TRW.
2003:
-Signs up a long term contract with World Bank.
2004:
Satyam launches its largest Global Development Center outside India at Melbourne, Australia
2005 - 2007:
Many collaborations with MNCs and expansion of services, penetration in several countries.
Share of Promoters in Satyam from 2001 to 2009 i.e. date of Confession:
Chart of share price on 9th January, 2009
After effects of Confession letter:
SEBI debarred PwC’s network entities from issuing audit certificates to any listed company in India for two years starting April 1, 2018.
Sources: ET, NDTV, Slideshare, YouTube. etc
To start with, What is "SATYAM?"
Satyam (Popularly know as) is a company set up by B.Rama linga raju in the year 1987 in P&T colony with 20 employees to provide IT Services.
Name of the comapany: Satyam Computers Pvt ltd
Chairman and founder: B. Rama linga raju
Co-Founder: DVS Raju (Brother-in-law of B. Rama linga raju)
Who is Rama Linga Raju??
He is populary known as SATYAM Ramalinga Raju. He was born in the year 1954, in Bhimavaram. He belongs to "Raju" community and a farming family.
Academic achievements:
Bachelor of Degree from Andhra Layola collge, Vijayawada
MBA from Ohio university, USA
How did such a small company (hardly 20 employees) become Market leader?
Here's the RISE of SATYAM..!!
In June-1991, it earned 1st FORTUNE 500 client.
On August 26, 1991 it was converted to Public limited company. In 1991, there was a New Industrial policy (Privitization of many Public sector units).
It went public in 1992 where it's shares were over subscribed by 17 times.
Objective of Public issue: To raise funds for Infrastructure, Software development center with modern equipment.
In 1993, Joint venture with Dun & Bradstrret Corp., U.S.A.
1993-1997: Opened office at various places in India, USA & Japan. Partnered with bussinesses in Australia, Canada and Europe
1999: Became one of the FASTEST growing IT companies in India. Issues Bonus shares to its shareholders.
2000: Satyam Manufacturing Technology, a joint venture between Satyam Computers Services and US-based TRW, has received a $200 million contract from TRW.
2001: Listed in New york stock exchange. 1st in INDIA!!
Entered into many Joint ventures and collaborations all over the world to expand its services.
2003:
-World Bank gives outsourcing contract to Satyam Services.
-Satyam & Microsoft sign MOU to provide world class IT outsourcing services to Asia Pacific region.
-Implements SAP at Oman Trading Establishment.-Signs up a long term contract with World Bank.
2004:
Satyam launches its largest Global Development Center outside India at Melbourne, Australia
2005 - 2007:
Many collaborations with MNCs and expansion of services, penetration in several countries.
Till now only the POSITIVE's of Satyam were discussed. Here comes the scandal that went on...
Major persons involved in Satyam scam.
- B. Rama Linga Raju - Chairman and Founder of Satyam
- B Rama raju - Brother of Rama linga raju. Managing Director of Satyam
- V.Srinivas - CFO of Satyam
- S. Gopala krishnan, Audit Manger - PWC (Qualified CA)
- Talluri Srinivas - PWC (Qualified CA)
What actually did they do?
- Overstatement of Revenue and assets
- Understatement of Expenses and Liabilities
When did this start?
It actually started as a small gap between actual Operating profits and Book profits in 2001. (Rama linga raju has stated in his confession letter)
Why did he start so?
- To increase share value and market capitalization.
- Funding MAYTAS. (By diverting cash to Maytas which is owned by him)
- To be Number 1 in Market
- To get many MNC Clients
- To meet the growing competetion
- Greed for money
- To lead REAL ESTATE MAKET which was booming at that period by buying lands all over Andhra Pradesh and Telangana
How did this Scam became PUBLIC?
Mr. Raju had sent a CONFESSION LETTER to Chairman of SEBI, Board members and Stock exchanges. Here's the letter that was written by him.
Reason being, the gap between the Actual books of Accounts and Cooked books reached unmanagable proprtions. Also Raju tried to fill this gap by buying Maytas (Which is also owned by him) which failed due to objection of Financial institution investors.
How was the Cooking of accounts happened?
Mr. Raju had sent a CONFESSION LETTER to Chairman of SEBI, Board members and Stock exchanges. Here's the letter that was written by him.
Why did Satyam Rama Linga Raju Confess?
Reason being, the gap between the Actual books of Accounts and Cooked books reached unmanagable proprtions. Also Raju tried to fill this gap by buying Maytas (Which is also owned by him) which failed due to objection of Financial institution investors.
How was the Cooking of accounts happened?
- Creation of Fake invoices using Software applications like "Onetime"
- A web of 356 companies were formed to divert funds.
- Fake Fixed Depoits and Fictitious Interest accrued on FDs.
- Collusion of TOP Management and Auditors.
- No Independent confirmation was collected by Auditors. Bank confirmation was taken by Auditors from Satyam directly.
- Auditors failed to obtain 3rd Party evidence directly.
- No sample checking of Invoices.
- Liability against Tax was not reported.
- Extra-ordinary payment of Audit fee.
- Not verifed TDS on Intrest accrued.
- Serious Audit findings are ignored by Team leader.
- Non-Application of Standards on Auditing.
Departments involved in Investigation:
- Institute of Chartered Accountants of India (ICAI)
- Ministry of Corporate Affairs (MCA)
- Central Bureau of Investigation (CBI)
- Company law board
- Income tax Department
- Total amount of Financial Irregularity - Rs. 7855 Crores
- Total number of Fictitious Invoices - 7,500
- Total Fictitious revenue booked - Rs. 5352.8 Crores
- Total Fictitious interest income booked - Rs. 899.8 Crores
- Total Fictitious Foreign exhange gain - Rs. 206.1 Crores
- Total Fictitious employees - 13,000 Employees are Ghost employees who never existed
- Salary of 13,000 ghost employees amounting to 20 crores per month was allegedly withdrawn by Satyam Rama Linga Raju.
Share of Promoters in Satyam from 2001 to 2009 i.e. date of Confession:
Chart of share price on 9th January, 2009
After effects of Confession letter:
- Shares fell over 77% on a single trading session.
- Shares fell from Rs. 175 to as low as Rs. 11.5 and closed at Rs. 23.75.
- Sensex fell over 7.3% in a single trading session.
- NSE fell over 6.18% in a single trading session.
- Company's Market capitalization fell from 11,464 crores to 1607 crores
- There was around 5-15% fall in shares of 100s of clients of PWC. PWC were the Auditors of Satyam. Reason being loss of Investor's confidence.
- Satyam shares fell from 550 in 2008 to 11.5 in 2009 in BSE and NSE.
- Satyam shares fell from $29 in 2008 to $1.8 2009 in New York Stock exchange.
- Bank of India and State farm Insurance terminated its Engagement with Satyam
- GDP fell by 0.4%
SEBI debarred PwC’s network entities from issuing audit certificates to any listed company in India for two years starting April 1, 2018.
Thanks a lot for reading with patience,
Compiled and Analysed,
Aditya Kona 🙂🙂
Super article aditya kona, i hope there would be another fraud like sathyam under the guidance of you through deloite..
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