Satyam Computers Scam: The Story of India’s Biggest Corporate Fraud.

Accounting can sometimes go very wrong, either through wilful intent or failure to understand proper procedure and protocol. Some of the biggest accounting and financial frauds in history have been caused by failure to adhere to basic principles. The Satyam scam is one of the biggest accounting scams in India. The scam was done by the company Satyam Computers. Satyam computers were formerly the crown jewel of the Indian Information Technology (IIT). Industry, but its founders brought it to its knees in 2009 owing to financial misconduct.

The Satyam Computer’s Scam

The Satyam Computers scam exemplifies one of India’s most catastrophic scams, sending shockwaves across the business world. The Satyam scam was a methodically planned effort to defraud stakeholders.  The Satyam controversy is a sharp reminder of the significance of strong regulatory supervision, ethical behaviour, and good corporate governance in sustaining company confidence and integrity.

Scam Year	People Involved in the scam
2006-2008	B. Rama Raju (Chairman). Vadlamani Srinivas (Chief Financial Officer). Subramani Gopalakrishnan and T Srinivas (PWC Auditors, CFA)

 

Satyam Scam Exposed

The Satyam scam was exposed by an anonymous whistleblower who sent emails to one of the company’s directors, Krishna Palepu, revealing the fraud. Palepu forwarded the emails to another director and S. Gopalakrishnan, a partner at PwC, the auditor of Satyam. The emails prompted an investigation by the regulators and the auditors, eventually leading to Raju’s confession and arrest.

The scam was exposed in 2009 when the founder-chairman of Satyam Computer Ramalinga Raju confessed that the company’s account was tampered with. He disclosed a Rs.7000 Crore accounting fraud in the balance sheets. On January 7, 2009, Ramalinga Raju sent an email to SEBI and stock exchanges, wherein he admitted he confessed to inflating the cash and bank balances of the company.

Satyam Scam Case Study

In 2003, Raju started falsifying Satyam’s financial records to depict a more rosy image of growth and profitability than the firm had accomplished. Raju participated in a web of deception with his brother Rama Raju, Satyam’s managing director, and a group of top executives, faking audit reports and generating bogus invoices, clients, bank accounts, and even employees. To make things worse, Raju used Satyam’s finances to invest in his family’s enterprises, such as Maytas, for personal benefit in real estate and other projects.

Raju also manipulated the books by not including certain receipts and payments, resulting in an overall misstatement to the tune of Rs.12,328 Crore, showing an analysis of the findings of SEBI’s probe. Approximately 7,561 fake bills were even detected in the company’s internal audit reports and were furnished by one signal executive.

Merely through these fake invoices, the company’s revenue got overstated by Rs.4783 crore over 5-6 years. The probe itself continued for almost six years and found that fictitious invoices were created to show fake debtors on the Satyam books to the tune of up to Rs.500 Crore.

Weeks before the scam began to unravel with his famous statement that he was riding a tiger and did not know how to get off without being eaten. Raju had said in an interview that Satyma, the fourth-largest IT company, had a cash balance of Rs.4,000 crore and could leverage it further to raise another Rs.15000-20000 Crore.

Ramlinga Raju was convicted with 10 other members on 9 April 2015. The 10 people found guilty in the case are as:

1. B. Rama Raju Satyam’ss Former Managing Director).
2. B. Ramalinga Raju.
3. Vadlamani Srinivas (Former Chief Financial Officer)
4. Subramani Gopalkrishnan (Former PWC Auditor).
5. T. Srinivas
6. B. Suryanarayana Raju.
7. G. Ramakrishna (Former Employee).
8. D. Venkatpathi Raju (Former Employee).
9. Ch. Srisailam (Former Employee).
10. V. S. Prabhakar Gupta (Satyam’s Former Internal Chief Auditor).

Government’s Reaction to Satyam Scam

Indian law is continually evolving. However, this is how the government responded to the Satyam Scam:

Step	Description
Companies Act	The Companies Act of 1956 was abolished, and the Companies Act of 2013 took effect. Corporate fraud is a criminal offence under the new act’s terms. The statute explicitly defines and identifies cost accountants, auditors, and corporate secretaries as obligated to disclose Satyam’s scam. A new provision for auditor rotation was also implemented, requiring auditors to be replaced after five years and audit firms to be changed after ten years. Also, the Responsibility Statement should be included in the Board of Directors’ Report.
ICAI – The Institute of Chartered Accounts of India.	The accounting organisation underlined the auditor’s comprehensive reporting of fictional assets & contingent liabilities in its audit report.
SEBI	The SEBI Regulations 2015 (Listing Obligations and Disclosure Requirements) were enacted, and they established criteria for reporting actual and suspected frauds and disclosing important events that influence the decision-making ability of investors.
SFIO – Serious Fraud Investigation Office.	This regularity authority, constituted under the administration of the Ministry of Corporate Affairs, was given the status of a statutory organization under the Companies Act of 2013. In India, it looks into business and accounting fraud. Corporate governance best practices have become an urgent need.

 

Action Taken on Convict

After the scam came to light, the Government ordered an auction for the sale of the company in the interest of investors and over 50,000 employees of Satyam Computers. On 13 April 2009, via a formal public auction process, a 31% stake in Satyam was purchased by Mahindra & Mahindra-owned company Tech Mahindra as part of its diversification strategy. Effective July 2009, Satyam rebranded its services under the new Mahindra management as “Mahindra Satyam” and was then Mahendra Satyam, and was eventually merged into Tech Mahindra.

The Satyam saga eventually turned out to be a case of financial misstatements to the tune of approximately Rs.12,320 Crore, as per SEBI’s probe then. In the scam, Ramalinga Raju and three others were given a six-month jail term by SFIO in December 2014.

Highlights of the Satyam Scandal

• Satyam had won the Golden Peacock Award for Corporate Accountability in 2008, around five months before the Satyam scam was revealed.
• The same year, Mr. Ramlinga Raju Received the Ernst and Young Entrepreneur Award.
• When read backwards, SATYAM is MAYTAS, the real estate business Mr Raju sought to buy.
• Satyam was barred from conducting business with its connections for an eight-year term by the World Bank.
• PwC, the external audit company, has been barred from providing assurance and auditing services to publicly traded firms for over two years.
• Satyam is known as the “Enron Scandal of Indian History”. Enron was the largest accounting and business fraud in the United States, contributing to Wall Street’s demise.

Conclusion

The Satyam scandal emphasizes the need for ethics, solid governance, and accounting standards. Securities legislation and corporate governance are required in emerging markets such as India. Satyam Computers scam sparked more strict regulations. Investing bi financial crimes aids in the prevention of future incidents and encourages best practices.

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