Q-1
The Main Reason why Satyam Fraud came into limelight was-
Discuss the circumstances under which the Satyam
scam was exposed.
Why he confessed ?
 The gap in the balance sheet reached
unmanageable proportions and could not
be filled anyhow in future.
 The whistle blower whose email to a
Satyam board members triggered a chain of
events .
Ramalinga Raju’s Confession
 Failure to complete MAYTAS (Infra & Property) deal which could have helped R.Raju
to cover inflated balance sheets.
 World Bank’s 8 year ban on Satyam for data theft & bribery allegations (Dec 23, 2008)
 4 board members resign in the wake of MAYTAS controversy (Dec 28, 2008)
 Sale of pledged shares of promoters resulted into promoters’ stack coming down
(from 25 % in 2001 to around 5 % in 2009) .
 Share Price of Satyam got affected because of negativity spread in market.

PRESSURE TO MEET EXPECTATION Growing Competition
Threat of being overtaken
OVERCONFIDENCE On his ability
PERSONAL BENEFITS
Siphoning of funds / Salaries of non-existent
13000 employees
“Since about seven years we wanted to show more income in the accounts to avoid
others from involving in the company affairs and any possible hostile acquisition ”
What can be the possible reasons behind his confession ?
Q-1

Who could have prevented this fraud ? Q-2
Investors
Board
Members
Government
Intervention
Accounting
Standards
Ethics &
Code of
Conduct

 Board Composition
(Aug 2008, Form 20-F, No
individual as Audit Committee
Financial Expert, Out of 6 non
management directors- 4 were
academicians. )
 Board Independence
(Non management directors
didn’t meet without
management directors)
 Board Committee
(Lack of nominating & corporate
governance body)
Corporate Governance Mechanisms Adopted By Satyam Q-3

Roles of External Auditors:
 Auditor didn’t confirm & re-verify the bank balances independently.
 Violation in cross checking of financial data: No sample checking of invoices.
 They took audit fees ( 430 mn INR ) which were way above than Industry
average. (Wipro- 280 mn , Infosys- 153 mn, TCS- 277 mn INR)
 At the end of financial year 2007-08, Satyam showcased a debt of 2.36 Billion
INR , even after having unused cash asset of 44.62 Billion INR – Surprisingly
none of the auditors checked this discrepancy.
Assessing Responsibilities of Internal & External Auditors Q-4
Roles of Internal Auditors:
 Fake invoices of total 327 companies (registered in names of Raju & his
family) went unverified over the years.
 Cash and Bank Balances / fictitious assets were not cross checked.
 Audit Plans were prepared on the basis of the approval of the promoters.
 Internal auditors didn’t raise their concern regarding assigning PWC as an
external auditor for the long time, and high audit fees got approved without
any issues.
 Serious findings of the auditing team were ignored by the audit team leader
at the time of signing the audit report.
 In actual nobody did their job properly right starting with committee headed
by CFO and team

 Chairman used all his brains just to save him
and make money by taking a step of
acquiring his sons’ companies MYTAS (Infra
& Property) but as deal did not happen and
due to other factors company downfall
started.
 Even after confessing he tried to portray
himself as sympathetically innocent and
took the overall responsibility about the
wrong doings.
 Somehow, He was sure that by doing this he
will get the sympathy and also surrendering
may lead to less jail terms and
consequences. He admitted all the frauds in
such a way that it may look genuine, and he
remains ‘GOOD’ in the eyes of his
shareholders.
“ It was like riding a tiger,
not knowing how to get off
without being eaten.. “
Evaluating statement made by R.Raju in his resignation letter Q-5

Roles of Board of Directors in Preventing a Financial Fraud
 Board of directors should be inquisitive enough to check this kind of irregularities
and raise doubts if something appears fishy.
 Independent director is responsible for final audit hence he must have a
background of CA, ICWA or Accounts as is evident from post-crisis board of
Satyam- 3 of the 5 independent board of directors do have B.Com and
Chartered Accountant background, This feature of independent directors
hailing from Accountant was strictly absent in pre-crisis board of Satyam.
 Other general characteristics of board that can play a role in preventing financial
statement frauds are -
 Periodically Monitor - financial activity on a regular basis, comparing actual to
budgeted revenues and expenses
 Avoid or discourage related party transactions - useful in preventing subsidiary
related frauds.
Q-6
Statistics have shown time and time again that a lot of employees will do just that in order to meet
budgetary goals, secure bank loans, earn bonuses and salary increases, and obtain donor funding.
 Reduce the pressures that encourage financial statement fraud
– Don’t give your employees unachievable financial goals such as unreasonable fundraising quotas or
unrealistic budgets.
– Set firm accounting policies, and don’t allow exceptions.
 Reduce the opportunities employees see to commit fraud
– Maintain accurate accounting records – including monthly reconciliations of all accounts and
constant management overview.
– Physically secure company assets, check stock, signature stamps, etc.
– Always have segregation of duties in the accounting department.
– Run background checks on all potential employees before hiring.
 Reduce the rationalization of fraudulent actions
– Set the tone at the top and lead by example. Employees can easily rationalize dishonest behavior if
they see unethical behavior in management as well.
– Establish strong company policies that define what is and is not tolerated within the organization.
 Engage the Auditor
 An annual audit and a strong relationship with an auditor can add tremendous value to an
organization, in terms of accounting expertise, advice on internal controls, and knowledge about
industry issues.

There are many loop holes in government regulations, which companies use
intentionally for their own profit.
But, to a large extent changes in the laws / regulations will help preventing
companies doing all such kind of frauds. Some of the changes could be:
 Proper auditing of publicly listed firms from more than 1 auditing agencies.
 Keeping in-check of assets and invoice related data of non-listed companies, so
that highly inflated B/L sheets can be traced down right from the beginning.
 Stricter Punishments and Faster decisions in such fraud cases, special trial / fast-
track courts should be made.
Corporate Governance is not something which can be enforced by mere legislation;
it is a way of life and has to imbibe itself into the very business culture the company
operates in. Ultimately, following practices of good governance leads to all round
benefits for all the parties concerned. The company’s reputation is boosted, the
shareholders and creditors are empowered due to the transparency Corporate
Governance brings in, the employees enjoy the improved systems of management
and the community at large enjoys the fruits of better economic growth in a
responsible way.
Making regulatory changes would help in preventing the fraud? Q-7

“Independent directors should also (in addition to the management) be held
accountable for board decisions and audit-related compliance practices.”
— Andrew Holland, CEO, equities, Ambit Capital
“The concept of CEO and Board chair separation is well accepted in Europe, and
American companies are steadily moving in that direction. This would bring a better
balance in the boardroom.”
— Neville Dumasia, head, Governance, Risk and Compliance, KPMG
“Accountability and action against fraud/negligence are major concerns. Professionals
(auditors) should be made accountable and consequences (punishment) should follow
if there are any deficiencies and slip-ups.”
— N K Jain, secretary and CEO, Institute of Company Secretaries of India
Lessons learned from this case
 Investigate All Inaccuracies
 Stricter Punishment / Rules, Faster
Decisions
 Corporate Governance Needs to be
Stronger
Q-8

Regulatory Changes in India After Satyam Scam Q-9
Satyam Scam increased risks stemming from being an independent director in Indian firms.
(i) IDs exited in large numbers from other Indian firms resulting in an overall decrease in
the percentage of IDs in corporate boards.
(ii) The quality of IDs, as measured by their educational qualifications and professional
experience, declined.
(iii) Director compensation, in particular fixed compensation, increased.
Consistent with the market interpreting ID exits as a negative signal about the firm, we find
that negative stock price reactions to ID exits. This reaction is disproportionately more
when the ID sat on the audit committee of the board and possessed business expertise.
The failure also highlighted the ineffectiveness of monitoring by IDs.

Regulatory Changes in India After Satyam Scam Q-9
The Satyam scandal also served as a catalyst for the Indian government to rethink the
corporate governance, disclosure, accountability and enforcement mechanisms in place.
 Corporate Governance provisions of the companies bill (2009)
 Audit process, Auditors & Eligibility
 Independent Directors- Appointment, Qualification
 Meetings of the Board and its powers
 MCA Guidelines
 Issuance of a formal appointment letter to directors.
 Separation of the office of chairman and the CEO.
 Institution of a nomination committee for selection of directors.
 Limiting the number of companies in which an individual can become a director.
 Tenure and remuneration of directors, Training of directors.
 Performance evaluation of directors.
 Additional provisions for statutory auditors.
 SEBI Committee on Disclosure & Accounting Standards (September,2009)
 Appointment of the chief financial officer (CFO) by the audit committee after assessing
the qualifications, experience and background of the candidate;
 Rotation of audit partners every Five years (Now Ten)
 Voluntary adoption of International Financial Reporting Standards (IFRS);
 Interim disclosure of balance sheets (audited figures of major heads) on a half-yearly
basis
 Streamlining of timelines for submission of various financial statements by listed entities
as required under the Listing Agreement.46
 In early 2010, SEBI amended the Listing Agreement to add provisions related to the
appointment of the CFO by the audit committee and other matters related to financial
disclosures.
 Compliance & Enforcement : To Clause 49

Regulatory Changes in India After Satyam Scam
 Disclosure of Pledged Securities :
 SEBI increased disclosure obligations of promoters and controlling
shareholders
 Two weeks after Satyam's collapse, the SEBI made it mandatory for
controlling shareholders to disclose any share pledges.
 Increased Financial Accounting Disclosures:
 SEBI also proposed requiring companies to disclose their balance sheet
positions twice a year.
 Increasing both the frequency and detail of disclosure will help provide for a
more robust market check
 E.g. investors will be able to judge companies better and pay more attention
to accounting irregularities.
Q-9
 IFRS (Adoption of International Standards):
 Satyam strengthened India's commitment to adopting International
Financial Reporting Standards ("IFRS").
 Adopting IFRS will facilitate investor comparisons of financial performance
across country lines and will increase confidence in the accounting numbers.
 Creation of New Corporate Code - Ministry of Corporate Affairs:
 New corporate code for Indian publicly listed companies that will impose
more stringent disclosure obligations than the SEBI currently requires.
 Indian law currently creates obstacles to investors filing class action lawsuits
 A new law that would make it easier for Indian investors to form class action
lawsuits against fraudulent actors in the company

Post Satyam : On-going Case & Current Justice System
for white-collar crimes
On-going Case
i. On 8th December,2014, B. Ramalinga Raju, the former chairman of Satyam
Computer Services Ltd, was handed six months imprisonment by an economic
offences court in Hyderabad, nearly six years after he confessed to cooking the
books at the fourth biggest software services firm Satyam.
ii. Raju was also fined a total of Rs.10.5 lakh in six different cases filed by the Serious
Frauds Investigations Office (SFIO). Raju’s brother and former Satyam managing
director, B. Rama Raju, and former whole-time director of Satyam, Ram Mynampati,
were also handed similar punishment.
iii. But at present all the accused are out on bail. The court order was subsequently
suspended to enable the accused to file appeals.
iv. Apart from CBI and SFIO, Raju is also being tried in separate cases filed by the
Securities and Exchange Board of India (SEBI) and Enforcement Directorate (ED).
The SEBI case is being heard in the economic offences court while the special court
is conducting the trial of the ED case.
v. The judgement in the criminal aspect of Satyam Computer accounting scandal
which was supposed to be delivered by a special court on December 23rd 2014, has
been postponed to March 9.
Q-10

Post Satyam : Ongoing Case & Current Justice System
for white-collar crimes
White-collar crime is a broad term that covers a variety of nonviolent crimes that are
alleged to involve cheating in one form or another.committed by business and
government professionals.
Typical white-collar crimes (India) includes Health care fraud, bribery, Ponzi schemes,
insider trading, embezzlement, cybercrime, copyright infringement, money laundering,
identity theft, forgery, extortion, credit card frauds, Fake Employment placement
rackets, Tax Evasion, Telemarketing fraud etc.
 SEBI, CBI, Serious Fraud Investigation Office (Ministry of Corporate Affairs), Central
Economic Intelligence Bureau, Directorate of Enforcement , Directorate general of
Anti-Evasion.
In USA : It has been made mandatory for the Chief Executive Officer (CEO) and the
Chief Finance Officer (CFO) of a company to certify that: (a) the periodic reports filed
with the SEC are materially correct; (b) the financial disclosures ‘fairly represent' the
company's operations financial conditions, and (c); they are responsible for evaluating
and maintaining adequate internal controls. The penalty in case of false or improper
certification ranges from US$ 1 million to US$ 5 million or imprisonment up to ten
years or both
Q-10