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Satyam scam

  1. Satyam Scam Presented by :- Vishal Narvekar
  2. Company Profile • Satyam computer services limited was founded in 1987 by Mr. B. Ramalinga Raju • Satyam computers started with only 20 employees • The company offers consulting and information technology services to various sectors • Satyam computers converted into public ltd co. In 1991 • Listed in Bombay stock exchange in 1991 • Listed in New York stock exchange in 2001 • Listed in EURONEXT Amsterdam stock exchange in 2008 • There were 52000 employees working in satyam in September 2008
  3. Achievements • In June 1991 satyam made 185 clients from first fortune 500 companies • In 1994 satyam made allies with Dun & Brad Street Crop an USA based company • In 2000 satyam was declared one of the 100 most pioneering technology companies by World Economic Forum • In 2006 satyam ranked No. 1 in the ASTD award (American Society For Training And Development) • On April 14, 2008, Satyam won awards from MZ consult's for being a leader in India in corporate governance and accountability
  4. Who is B. Ramalinga Raju? • Ramalinga Raju was born on September 16, 1954 in Andhra Pradesh • He founded Satyam Computers and was its Chairman until January 7, 2009 when he resigned after admitting to commits corporate fraud • Awards – Ernst & Young Entrepreneur of the Year Services Award 1999. – Dataquest IT Man of the Year Award 2000 – Asia Business Leader Award 2002 – Ernst & Young Entrepreneur of the Year 2007 (revoked) – Global Peacock Award for Corporate Governance 2008 (revoked )
  5. Overview of the scam • Accounting fraud of over 7800 crores rupees • Past 7 years accounting books were cooked: -Profits were inflated -Understated liability and overstated debts -Accrued interest (which was non-existent ) -The gap in the balance had risen due to inflated profits • Planned to buy the Maytas to fill the gap in the balance sheet
  6. Responsible Parties • Ramalinga Raju: Satyam Former Chairman • B Rama Raju: Brother of Ramalinga Raju, Former Managing director • V Srinivas: Ex-chief financial officer • S Gopalakrishnan: PriceWaterhouse Auditor • Talluri Srinivas: PriceWaterhouse Auditor
  7.  Stock markets around the world collapsed during 2008 & the BSE fell from 21,000 to below 8,000.  The losses caused investors to withdraw funds from the stock market.  Satyams continuance positive results during 2008 , even in the economic crisis.  In October 2008, satyam reported net income of $132.3 million, an increase of 28 percent from the same quarter of the previous year.
  8. Saytam asserted that, despite the challenging environment, it continued to find opportunities for growth. During October, one stock analyst drew attention to large cash balances in non- interest bearing bank accounts & expressed concern about the large balances and the accuracy of the numbers. Investors ignored the analyst's and the stock price rose with the reports of positive earnings and revenue growth.
  9. In December 2008, Board of Directors approved the purchase of Maytas Properties and Maytas Infrastructure, two companies unrelated to the information technology field. At the time, Mr. Raju and the Board anticipated that the market would "be delighted" by the two transactions as it would provide Satyam with greater diversification. However, investors were outraged over the transactions because Mr. Raju's family held a larger stake in Maytas Properties and Maytas Infrastructure.
  10.  Shareholders viewed the transactions as an attempt to siphon money out of Satyam into the hands of the Raju family.  Satyam quickly aborted the transactions, but the incident still caused significant damage to Satyam's reputation as a well-managed company.  After the incident, satyam's shares dropped nearly 10 percent and four of the five independent directors resigned.  On december 30, analysts with Forrester research advised clients to stop doing business with satyam because of the fear of widespread fraud.  Satyam hired Merrill lynch to advise it on ways to increase shareholder value.
  11. On january 7, just hours before Mr. Raju disclosed the fraud, Merrill lynch sent a letter to the stock exchange indicating that it was withdrawing from its engagement with satyam because during the course of its representation it found accounting irregularities. On January 7, 2009, Mr. Raju sent letter to Satyam's Board of Directors admitting that he manipulated the company's accounts for numbers years.
  12. Major points in letter • On January 7, 2009, Mr. Raju disclosed in a letter to Satyam's Board of Directors that he had been manipulating the company's accounting numbers for years. • Mr. Raju said the manipulation started out small, and grew larger by the year. • In the letter he stated, "It was like riding a tiger, not knowing how to get off without being eaten." • Mr. Raju stated that eventually, the stress of hiding the fraud grew too much for him to bear.
  13. Modus operandi
  14. Fake Accounts • Mr.Raju overstated income in every quarter for several years to meet analyst expectations. • Mr. Raju created fake bank statements to advance the fraud. • Mr. Raju created 6,000 fake salary accounts and appropriated the money after the company deposited it. • The global head of internal audit created fake customer identities and generated fake invoices against their names to inflate revenue. • Mr. Raju diverted a large amount of cash to other firms that he owned ,since 2004
  15. Fake Balance Sheet  Annual report of SATYAM as on September 30,2008. CURRRENT ASSETS Particulars Amt in CR. ACTUAL DEBT WAS Investment 618.64 2161CR, Current Assets , Loan & Advance OVERSTATED 490 CR. 1.Sundry Debtor 2651.36 ACTUAL CASH IN BANK 2.Cash & Bank Balance 5312.62 WAS 321, INFLATED 5040 CR. 3.Other Current Assets- Interest Accrued On 376.34 Fixed Deposits 4.Loans & Advances 502.22 NO ACCRUED INTEREST 376.34 CR. LIABILITIES Particulars Amt in CR. Current liability & provision UNDERSTATED LIABILITY by 1.current liabilities 1669.20 1230 Cr.
  16. Role Of Auditors • Global auditing firm Price Waterhouse Coopers audited Satyam's books from June 2000 until the discovery of the fraud • This fraud was not committed overnight • It was building up continuously from over years • Satyam paid pwc twice what other firms charge for the audit. • They ignored some of the obvious indications of scam, which could have been caught much before it acquired the ‘massive’ status
  17. Indications Of Scam • $1.04 billion non-interest bearing deposits in balance sheet. • According to accounting professionals, a reasonable company would have either invested the cash or returned the excess cash to the shareholders. • Auditors did not verify with the banks in which satyam claimed to have deposits. • The fraud went on for a number of years and involved both the manipulation of balance sheets and income statements. • Whenever satyam needed more income to meet analyst estimates, it simply created fictitious sources and it did so many times without the auditors ever discovering.
  18. The Maytas Acquisition • Maytas infra and Maytas properties : firms owned by the sons of Raju. • A property development company founded in 2005
  19. • The Raju family directly owned about one- third of each in the two companies. • In December 2008 satyam Planned to buy the Maytas. • The company management said the Acquisition will diversify the company. • Real Plan was to fill the gap in the balance sheet.
  20. Impact Of Scam • Jobs of over 50000 were at risk. • India`s global image was suffered. • Indian stock market fell dramatically. • Biggest single day fall of 175 Rs. On Jan 6th in saytam share. • SEBI said that, if Saytam found guilty, its license to work in India may be revoked. • The New York Stock Exchange halted trading in Satyam stock. • India's National Stock Exchange announced removal of Satyam from S&P CNX & Nifty 50. • The GDP fell by 0.4%. • I.T sector suffered a downturn.
  21. Regulatory action • New board of directors were appointed. • Disclosure of pledged securities. • Increased financial accounting disclosure. • Adoption of international standards. • Creation of new corporate code of conduct by Ministry of Corporate Affairs.

Notes de l'éditeur

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