Abhijit Samanta

SATYAM SCAM

2010

INTERNATIONAL SCHOOL OF BUSINESS & MEDIA; KOLKATA

Company Introduction: -
Satyam a leading IT company, delivering consulting, system integration & outsourcing
solutions to clients in over 20 industries. The company was started in 1987 by B.
Ramalinga Raju. The network of the company covers 67 countries across six
continents. In India 40,000 employees are associated with the company. Satyam uses
strategic technology and marketing alliances with over 50 companies. Apart from the
head office which is at Hydrabad the company also having development centers across
various places of India like Kolkata, New Delhi, Mumbai, Bangalore etc.

The Starting of the scam: -

The Satyam fraud was the biggest fraud case in the Indian corporate history. It was not
the case of one or two single months the case was continuing since last 10 long years.
The company chairman B. Ramalinga Raju was able to kept everyone in the dark.

The company had faced some inflated share price in the market which helped the
people to hide the actual figures in the balance sheet. As a result of this there was
suddenly a huge fall in the share price of the company and everything was crystal clear.
The more insights is given in the financial details.

Financial Details of the scam: -

The total fraud case was of Rs 7,800 cr. (Rs 78 billion). According to the company
statement there was Rs 5000 cr. in the bank when this was not the right picture. Some
insights on the company balance sheet as on 31st September 2008 will make the topic
much easier to understand. Some of the facts which was written by Raju himself to
Satyam Board on the letter are stated below.

 Inflated (non-existent) cash and bank balances of Rs 5,040 cr. (as against Rs
5,361 cr. reflected in the books).
 An accrued interest of Rs 376 cr. which is non-existent.
 An understated liability of Rs 1,230 cr. on account of funds arranged by me. (The
chairman B. Ramalinga Raju itself).
 An understated liability of Rs 1,230 cr. on account of funds arranged by him.

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  For the September quarter(Q2) they reported a revenue of Rs 2,700 cr. and an
operating margin of Rs 649 cr. (24% of revenue) as against the actual revenues
of Rs 2,112 cr. and an actual operating margin of Rs 61 cr. (3% of revenues).
This has resulted in artificial cash and bank balances going up by Rs 588 cr. in
Q2 alone.

The main cause of the differences in the figures of the balance sheet was the inflated
profits since several last years. It created a significant difference in the shown figure and
the actual figure of the balance sheet.

Satyam fraud a blow to Indian Capitalism: -

The global financial crisis was already a major issue. Then after this the Satyam’s
revelation is a big blow to confidence in Indian capitalism. Leading family conglomerates
have already had a tough year—poor performance and acquisition choices have seen
confidence falter in both the Tata and Reliance business empires. The Satyam fraud will
further erode faith in the whole Indian model of capitalism, which is largely dominated by
family-run conglomerates.

Satyam’s disgraced chairman described the growing fraud as “like riding a tiger, not
knowing how to get off without being eaten”. The same sentiment applies to too much of
the financial boom, in India and elsewhere.

The Auditors opinion: -

There was no cash with the company’s bank balance; even after that how the auditors
could sign over the balance sheet without verifying it properly. The limitation was not
over only on the cash there was also a non existing interest. The auditors also signed
over that. Here the company officials said that they relied on the data provided by the
auditors.

The chief financial officer, Srinivas Vadlamani told that he never paid so much attention
to the balance sheet.

Now the big question is that “Is it a matter of two or three people only?” it may be that
inside the company there were also some other people who were actually engaged in
this case but somehow they could manage to escape.

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Shareholders & the Media: -
• Sometimes activism just does not help.

• When Raju sought to push through the Maytas deal without taking shareholders
into confidence, he was faced with huge protests.

• The media, keen to help the underdog, too joined in the protest.

• Raju was forced to cancel the deal.

• In hindsight, it appears that it would have perhaps saved Satyam if the deal had
been allowed to go through, as Satyam would have been able to use Maytas's
assets to shore up its own books.

The action of Government: -

• The government, on its part, was perhaps too busy projecting the stellar show of
the Indian IT sector and did not find it necessary to launch an enquiry into these
'complaints,' so to speak.

• Thus by way of negligence the government too is equally guilty in not having
managed to save the shareholders, the employees and some clients of the
company from losing heavily.

• The Bharatiya Janata Party asked the Centre and Andhra Pradesh government
to take steps to protect the interests of 53,000 employees and investors of the
scam-hit Satyam Computer.

• "The government of India and Andhra Pradesh government should take all steps
to protect the interests of investors and the company's employees," senior BJP
leader Venkaiah Naidu said on the sidelines of the BJP's Youth Rally in Chennai.