The document summarizes the Satyam accounting scandal that occurred in 2009. It describes how the founder and chairman of Satyam Computers, B. Ramalinga Raju, confessed to tampering with the company's accounts, creating a $1.1 billion fraud. He did this through forging invoices, bills, and financial statements over nine years. The scandal had major consequences, including the arrest of Raju, a drop in Satyam's stock price, and fines imposed on its auditors. Eventually, Tech Mahindra acquired and merged with Satyam to reconstruct the company.

1. BY Team MCS 237 R(5)

2. ALL ABOUT THE COMPANY
 Satyam Computer Services Limited (Famously called as Satyam)
was an Indian IT services company based in Hyderabad and was
established in 1987, and was the 4th fastest growing IT company in India.
 Satyam had 53,000 employees and 9% market share along with $2.1 Billion
in revenue.
 Satyam was listed in New York Stock, National Stock exchange and Mumbai
stock exchange.
 The company offers consulting and information technology services
including software development, system maintenance and packaged
software integration.

3.  The Satyam scam occurred in 2009 when founder and chairman of Satyam Computers, B. Ramalinga Raju made the
confession of having tampered with the accounts of the company and was found guilty in an accounting scam worth Rs
crore($1.1 billion)
 Ten people who were judged guilty in the Satyam case along with their designations are as follows:
 Ramalinga Raju Chairman and Founder of Satyam Computers
 B. Rama Raju Former MD of Satyam Computers
 Vadlamani Srinivas Former Chief Financial Officer
 Subramani Gopalakrishnan and T Srinivas Former PriceWaterhouseCooper (PWC) auditors
 B Suryanarayana Raju, G. Ramakrishna, D. Venkatpathi Rajuand Ch Srisailam Former Employees
 V.S. Prabhakar Gupta Former Internal Chief Auditor
SCAM & PEOPLE INVOLVED

4.  Raju has created fake invoices and bills using software application.
 Close to 356 investment firms were allegedly used to divert funds from Satyam Computers The companies used to conduct transactions with Satyam
Computers through inter- corporate investments.
 The money raised through this fraudulent practices was used for purchasing several thousand acres of land in Andhra Pradesh for capitalizing on the
booming real estate market.
 Facts had to be manipulated to display healthy profits for the company and every effort made to bridge the gulf between actual and manipulated accounts
failed.
 Satyam tried to cash out INR 7800 crore through the sale of Maytas Infrastructure and Maytas Properties, which was the last unsuccessful attempt made to
recover the money and it failed.
 Nearly $1.04billion in bank loans and cash that the books showed was nonexistent. Also on 10 January 2009, the same day, the Crime Investigation
Department (CID) came into picture.
 Results announced on October 17, 2009, overstated quarterly revenues by 75% and profits by 97%.
 The firm was worth $1billion in 2003. Satyam soon went on to cross the $2billion mark in 2008. in the industry after TCS, Wipro, and Infosys.
FRAUD

5. CIRCUMSTANCES & TRIGGERS 1/2
1. Deliberate loopholes in the Computerized Accounting System which uses ERP modules.
The high-level application landscape of Satyam internal applications has many links between various systems where either
there was no integration or there was weak integration. These loopholes were intentionally left to insert fictitious invoices
and bank statements to balance them without being detected.
2. Unethical Conduct – Ramalinga Raju Satyam’s chairman Ramalinga Raju’s way of conducting the business is the classical
example of unethical practices in the industry.
Incentive:
a) the greed for money
b) acquiring lands.
c) Compete with the top three IT companies of India (Infosys, TCS and WIPRO).
Actions: Raju chose the easiest yet the most immoral ways to achieve his goals.
a) Forged the accounting books for nine years
b) Avoided taxes, and
c) Diverted the money received from shareholders
d) Created fake clients
e) Account fake salaries and invoices
Ramalinga Raju showed his company in very good financial health and attracted money from shareholders to buy lands.
Ethical standards thus in the company were poor.
3. Negligent Board of Directors
The directors at the Satyam Board never questioned the actions of their Chairman. They did not raise objections when the
management decided to invest 1.6 billion dollars to acquire a 100 percent stake in the two real estate firms promoted by
Raju's sons which was in gross violation of the Companies Act 1956, under which no company is allowed without
shareholder’s approval to acquire directly or indirectly any other corporate entity that is valued at over 60 percent of its

6. CIRCUMSTANCES & TRIGGERS 2/2
4. Dubious role of Independent directors
Six of the nine directors on Satyam’s Board were independent directors. But the fact that seven out of
nine of these directors were present when Maytas deals were unanimously finalized, raises questions
about their integrity. It indicated that they were aware of the malpractices and kept silent about them
5. Questionable role of Banks
Banks did not raise any doubt while sanctioning the short-term loans to Satyam which was supposedly a
cash rich company. The behaviour of banks is unscrupulous in this regard.
6. Faulty Ownership model
Satyam ownership model was flawed from the perspective of good corporate governance.
a) As a publicly owned company, it was under pressure to overstate profits to keep the company’s
bonds and equities in high esteem.
b) Mr. B. Ramalinga Raju, diluted his holding from 25.6 % in 2001 to 3.6 % in 2009. He could overstate
profits with the objective of influencing other shareholders. The overstatement never hurt him as his
own share was small.
c) Satyam would not have overstated its revenues and profits if it had to back both with real cash. A big
part of the blame for the colossal fraud thus belongs to India’s trade and fiscal policy makers.

7.  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 Shares of
Satyam fell from US$29.10 in 2008 to US$1.80 in March 2009 Satyam was also removed from the Nifty and the Sensex
 The Institute of Chartered Accountants of India (ICAI) has imposed a life-time ban on four auditors — S Gopalakrishna,
Talluri Srinivas, V Srinivasa and VS Prabhakara Rao — involved in the Satyam Computers accounting fraud.
 Many companies terminated its engagement with the company. Mahindra bought Satyam for Rs 58 per share and formed
Mahindra Satyam and was subsequently merged with Tech Mahindra on 24th June 2013
CONSEQUENCES

8.  PriceWaterCoopers 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.
IMPACT on external auditors

9. LEARNINGS & CONCLUSIONS 1/2
 In this case, the fraud done by group of people in power and who thought that they could
cover up the scam.
 By placing the controls in the organization, would have detected the fraud in the beginning
stages and not resulted in scandal reducing the impact.
 By proper segregation of duties. Transaction entry, processing and completion should be
performed by different group of people and no one should have complete authorization to
make changes in the Ledger without approvals.
 By reconciliation methods to check the account balances.
 By ensuring that the audits are done independently and reports of internal and external
audits are assessed and checked by the board.
 Corporate governance need to be stronger and having transparency as a culture throughout
the organization.

10.  There has been no scam that affected the CA and audit firms like the Satyam Scam.
 The increasing nature of these scams has made dependence on such professionals much more crucial
highlighting the importance of ethics and CG in their roles.
 White-collared crimes like these do not only make the company look bad but also the industry and the
the industry and the country.
 Satyam’s Fraud motivated the GOI to tighten Corporate norms to prevent investors and safeguard the
credibility of India and the Nations image across the world.
 An effective “whistle Blower Policy” In place, Education on ethical values, criteria for remuneration to key
personnel, and strengthening of quality review.
LEARNINGS & CONCLUSIONS 2/2

11.  Appointing new board.
 New board appointed by government.
 New CEO- A S Murthy Tech Mahindra acquired Satyam.
 Tech Mahindra acquired satyam on April 13,2009.
SATYAM RECONSTRUCTION: