2. I* would like to bring the following facts to your notice..
1. The balance Sheet carries as of 30th September 2008…
(a) inflated ( non existent) cash and bank balances of Rs 5000cr
(b) An accrued Interest of Rs 376 cr which is non existent
(c) An understated liability of Rs 1230cr on account of funds raised by me
(d) An overstated debtors position of Rs 490 cr
*Email from Ramalinga Raju to SEBI
A Confession
-5
0
5
10
15
20
25
30
35
03-04 04-05 05-06 06-07 07-08
EPSRS
Reported and Actual EPS
Reported
Actual
The Other Actors
Name Designation
B Rama Raju MD
V Srinivas CFPO
G Ramakrishna VP (Finance)
P Gupta Head Internal Audit
3. The Invoicing system was Intruded..
The Invoicing management System (IMS) is a multi step control system
Step System Activity
1 OPTIMA generates an ID for a Project
2 E SUPPORT allocates manpower and other resources
3 ONTIME executives log time and other resources
4 PBMS raises partial invoices
5 IMS consolidates and prepares customer invoices
6 ORACLE Invoices are transferred to the ORACLE package
The Excel Intruder
The CFOs office introduced Invoices via an
Excel File directly at Step 5
These Invoices were hidden in the Oracle
Monitoring System and , therefore, could not
be monitored by the Business Group Head
The topline is paramount …
Help From Oracle Financials!
YR Reported Fake Actual
03-04 2541 213 2328
04-05 3464 309 3155
05-06 4634 662 3972
06-07 6228 686 5542
07-08 8137 1734 6403
08-09* 5227 1177 4050
Revenues :The Springing Tiger!
*Half year
0
500
1000
1500
03-04 04-05 05-06 06-07 07-08
Rscr
Fake Inv
A growth best avoided!
It was like riding a
tiger not knowing
how to get off..*
*Email to SEBI
Rs cr
4. The consequent statistics..
4119 Value of Fake FDs raised in Rs cr
7561 Number of Fake Invoices
52
Additional TDS in Rs cr reported
on fake Interest in 07
0 5 10 15 20 25
Actual
Reported
OPM % 07-08
5. But the Internal Audit was aware…
The fraud was detected in 2007-2008 by the Internal Audit, when a reconciliation of Invoices in the IMS and the Oracle Financial was carried
out by the Internal Audit.
The response …
“When these differences were reported to Finance Dept of Satyam Computers, they replied to the Internal Audit that these
differences were being reconciled and subsequently, the Internal Audit team‟s access to the OFF module in Oracle Financials was
also removed. It was also stated by Mr. Prabhakara Gupta that Mr. Rama Raju had directed him to close the observations
regarding the reconciliation of the invoices and told him that Mr. Ramakrishna would take care of the same. “ (SEBI report)
The Internal Audit was first silenced
The Internal Audit subsequently collaborated
“Although Internal Audit had detected the mismatch between the invoices in the IMS and Oracle Financials as far back as in
the first quarter of 2007-08, it closed these observations and filed false reports to the effect that the observation had been
settled and/or that reconciliation would be verified in the future. It is also important to note that the Internal
Audit process was conducted by an internal team. “ (SEBI Report)
6. What about others ..?
No Entity Status
1 Accounting Daily cash balances were genuine from the Banks
Monthly statements were prepared with balances provided by Chairmans’ office
2 Bank FD •Banks originated FD statements remained in the Chairmans’ office
•Fake FD Certificates from the Chairmans’ office were shown to Auditors
•In spite of evident errors visible in the fake Certificates, it passed the scrutiny of
the External Audit for 5 years !
3 Business Head Was not aware of the fake invoices as they were hidden in the Oracle Financials
which was the system used to monitor receivables
4 Investment Community Guilty of not carrying a basic study of the Balance Sheet
7. And so SEBI concluded …
According to SEBI
Name Finding
Ramalinga Raju Chief Orchestrator of the Fraud
Rama Raju Orchestrator and participant in the fraud
V Srinivas Accounting on the basis of fake monthly Bank Statements
G Ramakrishna Claimed ignorance , but was aware and participated in the fraud
Prabhakar Gupta •Was prevailed , or chose to on his own, to close the investigation into mismatched
invoices
•Did not inform the Audit Committee
•Is, therefore, a participant or acquiesced to the fraud
The Judgment
Name Judgment
Ramalinga Raju
Rs 1803 cr of profits on sale/pledge of shares to be “disgorged“ and paid to SEBI
Rama Raju
V Srinivas Rs 29.5 cr of profits on sale/pledge of shares to be “disgorged“ and paid to SEBI
G Ramakrishna Rs 11.5 cr of profits on sale/pledge of shares to be “disgorged“ and paid to SEBI
Prabhakar Gupta Rs 5.1 cr of profits on sale/pledge of shares to be “disgorged“ and paid to SEBI
Of this, Rs 1230 cr
was routed to the Co
as proceeds from
fake invoices! It is no
longer an asset with
Rajus. A double
whammy!!
8. Learnings..
No Area Learning
1 MCS The most sophisticated of MCS is only as good as the intention of the Owner.
2 CFO Money is still a great motivator for compliance or the lack of it.
An independent Treasurer is an oxymoron
3 Internal
Audit
Auditor responsible to the Board is a myth
Money is a good salve for a troubled conscience
4 External
Audit
Even the biggest of names can be fooled , since the Auditor does not apply his analytical skills
to understanding the figures. Compliance and vouching are still the pillars of on which audit
rests
5 Analysts Are little more than “programmed” CA’s not bothering to examine the relevance of the
figures . Not one Analyst raised the flag of the huge FDs in a Corporate environment . With
such high FDs the Company share prices should actually be discounted!!
6 I BAnker Ultimately a transparent and sincere client in the boondocks is much better to a high flying
brand name with nefarious intentions
9. A murder may be committed in the heat of moment upon passions being
aroused. An economic offence is committed with cool calculation and
deliberate design with an eye on personal profit regardless of the
consequence to the community. A disregard for the interest of the Community
can be manifested only at the cost of forfeiting the trust and faith of the
community in the system to administer justice in an even handed manner
without fear of criticism from the quarters which view white collar crimes with
permissive eye, unmindful of the damage; done to the National Economy and
National Interest, as was aptly stated in State of Gujrat V. Mohanlal
Jitamalji Porwal and Anr. AIR (1987) 1321). Unfortunately in the last few years,
the country has seen an alarming rise in white collar crimes which has affected
the fibre of the country's economic structure. These case are nothing but
private gain at the cost of public,and lead to economic disaster."
The Supreme Court on economic offenses
Supreme Court Ram Narayan Vs CBI 1999
