Satyam Scandal Case Study Ppt

The 'Satyam Computer Services, scandal was a corporate scandal affecting India-based company Satyam Computer Services in 2009, in which chairman Ramalinga Raju confessed that the company's accounts had been falsified.[citation needed]

History[edit]

Initial confession and charges[edit]

On 7 January 2009, the chairman of Satyam, Byrraju Ramalinga Raju, resigned, confessing that he had manipulated the accounts of Rs 7,000 crore. The global corporate community was said to be shocked and scandalised.[1]

In February 2009, CBI took over the case and filed three partial charge sheets (dated 7 April 2009, 24 November 2009, and 7 January 2010), over the course of the year.[citation needed] All charges arising from the discovery phase were later merged into a single charge sheet.[clarification needed][citation needed]

On 10 April 2015, Byrraju Ramalinga Raju was convicted with 10 other members.[2][citation needed]

Role of Auditors[edit]

Price water house Coopers affiliates served as independent auditors of Satyam Computer Services when the report of scandal in the account books of Satyam Computer Services broke. The Indian arm of PwC was fined $6 million by the SEC (US Securities and Exchange Commission) for not following the code of conduct and auditing standards in the performance of its duties related to the auditing of the accounts of Satyam Computer Services.[3] In 2018, SEBI (Securities and Exchange Board of India) barred Price Waterhouse from auditing any listed company in India for 2 years, saying that the firm was complicit with the main perpetrators of the Satyam fraud and did not comply with auditing standards. SEBI also ordered disgorgement of over Rs 13 crore wrongful gains from the firm and 2 partners. Price Waterhouse announced their intent to get a stay order.[4]

Aftermath[edit]

"We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation."[citation needed]

On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. "The current board has failed to do what they are supposed to do. The credibility of the IT industry should not be allowed to suffer." said Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAI issued show-cause notice to Satyam's auditor PricewaterhouseCoopers (PwC) on the accounts fudging. ICAI President Ved Jain said: "We have asked PwC to reply within 21 days."[citation needed]

Also on 10 January 2009, the same day, the Crime Investigation Department (CID) team picked up Vadlamani Srinivas, Satyam's then-CFO, for questioning. He was arrested later and kept in judicial custody.[5]

On 11 January 2009, the government nominated noted banker Deepak Parekh, former NASSCOM chief Kiran Karnik, and former SEBI member C Achuthan to Satyam's board.[citation needed]

Analysts in India have termed the Satyam scandal India's own Enron scandal.[6] Some social commentators see it more as a part of a broader problem relating to India's family-owned corporate environment.[7]

Immediately following the news, Merrill Lynch (now a part of Bank of America) and State Farm Insurance terminated its engagement with the company. Also, Credit Suisse suspended its coverage of Satyam.[citation needed]. It was also reported that Satyam's auditing firm PricewaterhouseCoopers will be scrutinised for complicity in this scandal. SEBI, the stock market regulator, also said that, if found guilty, its license to work in India may be revoked.[8][9][10][11][12] Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues,[13] which was stripped from them in the aftermath of the scandal.[14] The New York Stock Exchange has halted trading in Satyam stock as of 7 January 2009.[15] India's National Stock Exchange has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on 12 January.[16] The founder of Satyam was arrested two days after he admitted to falsifying the firm's accounts. Ramalinga Raju was charged with several offences, including criminal conspiracy, breach of trust, and forgery.[citation needed]

Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008.[17] On the New York Stock Exchange, Satyam shares peaked in 2008 at US$29.10. By March 2009, they were trading around US$1.80.[citation needed]

The Indian Government has stated that it may provide temporary direct or indirect liquidity support to the company. However, whether employment will continue at pre-crisis levels, particularly for new recruits, is questionable .[18]

On 14 January 2009, Price Waterhouse, the Indian division of PricewaterhouseCoopers, announced that its reliance on potentially false information provided by the management of Satyam may have rendered its audit reports "inaccurate and unreliable".[19]

On 22 January 2009, CID told in court that the actual number of employees is only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing ₹200 million (US$3 million) every month for paying these 13,000 non-existent employees.[20]

The Indian government designated A. S. Murthy to become the new CEO of Satyam effective 5 February 2009. Special advisors were also appointed, Homi Khusrokhan of Tata Chemicals and Chartered Accountant T. N. Manoharan.[21][22][23]

On 4 November 2011, the Supreme Court granted bail to Ramalinga Raju, as well as two others accused in the scandal, since the investigation agency CBI had failed to file a charge sheet, despite having already had 33 months (from the time of Raju's arrest) to do so.[citation needed]

On 15 September 2014, the special CBI court hearing the case asked the concerned parties to appear before the court on 27 October 2014. Date of judgement was to have been indicated later on that day.[citation needed]

On 9 April 2015, Raju and nine others were found guilty of collaborating to inflate the company's revenue, falsifying accounts and income tax returns, and fabricating invoices, among other findings, and sentenced to seven years imprisonment by Hyderabad court. Kunjumani and his brother were also fined by the court 55 million rupees (US$883,960) each.[24]

Acquisition of Satyam by Mahindra Group[edit]

On 13 April 2009, via a formal public auction process, a 46% 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". After a delay due to tax issues[25][26]Tech Mahindra announced its merger with Mahindra Satyam on 21 March 2012, after the board of two companies gave the approval.[27][28] The companies are merged legally on 25 June 2013.[29][30]

See also[edit]

References[edit]

Bibliography[edit]

External links[edit]

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  1. ^http://www.thehindu.com/specials/timelines/satyam-scandal-who-what-and-when/article10818226.ece
  2. ^https://www.ndtv.com/india-news/satyam-fraud-verdict-in-6-year-old-case-likely-today-753451
  3. ^"SEC Charges India-Based Affiliates of PWC for Role in Satyam Accounting Fraud". Securities and Exchange Commission. 5 April 2011. Retrieved 2013-04-27. 
  4. ^"Sebi bars Price Waterhouse: What is the firm's role in the Satyam scam?". Securities and Exchange Commission. 11 January 2018. Retrieved 2018-01-18. 
  5. ^"Satyam ex-CFO Vadlamani Srinivas sent to judicial custody till Jan 23". The Economic Times. 11 January 2009. Retrieved 2015-12-19. 
  6. ^Satyam scandal could be 'India's Enron' – World business- msnbc.com (updated 11:42 a.m. ET 7 January 2009)
  7. ^The Caste of a Scam: A Thousand Satyams in the Making. Kafila.
  8. ^Satyam scandal rattles confidence in accounting Big Four. In.reuters.com.
  9. ^ICAI to seek explanation from Satyam’s auditor PwC. Livemint.com (7 January 2009).
  10. ^Satyam auditor says examining chairman's statement. Reuters.com (7 January 2009).
  11. ^What happens to PWC, The Auditor For Satyam?[dead link]
  12. ^Satyam: Auditors' body to pull up PwC ICAI to seek explanation from Satyam’s auditor PwC. Rediff.com.
  13. ^http://www.goldenpeacockawards.com/GPA_RESULTS_ANNOUNCEMENT_2008.pdf
  14. ^Satyam stripped off Golden Peacock Global Awards – Software-Infotech-The Economic Times (8 Jan 2009, 0118 hrs IST, PTI)
  15. ^NYSE halts trading in Satyam stock – (Wednesday, 7 January 2009, 23:02) Sify.com
  16. ^Satyam Computer Services Ltd (SAY.N) Key Developments (Stocks) Reuters.comArchived 24 February 2009 at the Wayback Machine.
  17. ^Indian IT scandal boss arrested – 9 January 2009 – Business – BBC NEWS
  18. ^Ready to bail out Satyam, if required: Govt. Moneycontrol.com (13 January 2009).
  19. ^Price Waterhouse says its Satyam audits relied on company information, could be wrong[dead link] – 14 January 2009 – Associated Press
  20. ^Satyam fudged FDs, has 40,000 employees: Public prosecutor. The Times of India.
  21. ^https://www.indiainfoline.com/article/general-others/satyam-computer-appoints-t-n-manoharan-and-ravindra-kulkarni-on-board-113110103596_1.html
  22. ^Satyam Names Murty as CEO to Replace Arrested Founder – (5 February 2009, 1813 hrs IST) Satyam Names Murty as CEO to Replace Arrested Founder
  23. ^A S Murty appointed as Satyam CEO – (5 Feb 2009, 1816 hrs IST) A S Murty appointed as Satyam CEO Kiran
  24. ^Retrieved from http://www.financialexpress.com/article/industry/companies/satyam-computer-case-b-ramalinga-raju-9-others-found-guilty/62062/.
  25. ^moneycontrol.com. moneycontrol.com (15 February 2011).
  26. ^Mah Satyam-Tech Mah to appoint bankers to fasten merger. Moneycontrol.com (30 August 2011).
  27. ^/Tech Mahindra, Satyam get nod to merge. Livemint.com (21 March 2012).
  28. ^High Court orders shareholders' meeting on MSat-Tech Mahindra merger. Profit.ndtv.com (11 May 2012).
  29. ^Tech Mahindra completes Satyam merger, becomes 5th biggest IT firm – Economic Times. The Economic Times. (26 June 2013).
  30. ^Satyam is history, merger with Tech Mahindra complete | Business Line. Business Line. (25 June 2013).

A special CBI court on Thursday sentenced B Ramalinga Raju, his two brothers and seven others to seven years in prison in the Satyam fraud case.

The court also imposed a fine of Rs 5 crore on Ramalinga Raju, the Satyam Computer Services Ltd's founder and former chairman, and his brother B Rama Raju and Rs 20-25 lakh each on the remaining accused.

HT presents a lowdown of the country's biggest-ever corporate accounting scandal.

What is the Satyam scam about?

It is about corporate governance and fraudulent auditing practices allegedly in connivance with auditors and chartered accountants. The company misrepresented its accounts both to its board, stock exchanges, regulators, investors and all other stakeholders.

Is this an accounting fraud, a market manipulation/fraud or both?

It is a fraud, which misled the market and other stakeholders by lying about the company’s financial health. Even basic facts such as revenues, operating profits, interest liabilities and cash balances were grossly inflated to show the company in good health.

Who is to blame here? The promoters?

The promoters are primary culprits, although it is almost impossible to misrepresent such facts without the connivance of the auditors and some executive board members. Independent directors, it seems, were kept in the dark about the actual books of accounts.

What about the auditors?

The role of external third party auditors, who were tasked to ensure that no financial bungling is undertaken to carry out promoters’ interest or hide facts, have also been brought to question.





Anatomy of a fraud



1. Maintaining records



· Raju maintained thorough details of the Satyam's accounts and minutes of meetings since 2002.

· Raju stored records of accounts for the latest year (2008-09) in a computer server called "My Home Hub."

2. Fake invoices and bills

· Details of accounts from 2002 till January 7, 2009 – the day Raju came out with his dramatic, five-page confession - were stored in two separate Internet Protocol (IP) addresses.
· Fake invoices and bills were created using software applications such as 'Ontime' that was used for calculating hours put in by an employee
· A secret programme was allegedly planted in the source code of the official invoice management system creating a user id 'Super User' with the power to hide or show the invoices in the system.

3. Web of companies

· A web of 356 investment companies was used to allegedly divert funds from Satyam.
· These companies had several transactions in the form of inter-corporate investments, advances and loans within and among them.
· One such company, with a paid up capital of Rs 5 lakh, had made an investment of Rs 90.25 crore and received unsecured loans of Rs 600 crore.

4. Why did he need the money



· The cash so raised was used to purchase several thousands of acres of land across Andhra Pradesh to ride a booming realty market.

· It presented a growing problem as facts had to be doctored to keep showing healthy profits for Satyam that was growing in size and scale.

· Every attempt made to eliminate the gap failed.

· As Raju put it, "it was like riding a tiger, not knowing how to get off without being eaten."

· Cashing out by selling Maytas Infrastructure and Maytas Properties to Satyam for an estimated Rs 7,800 crore was the last straw. The attempt failed and Raju made the stunning confessions three weeks later.



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