Preface
Accounting scandals, or corporate accounting scandals, are political and business scandals which arise with the disclosure of misdeeds by trusted executives of large public corporations. Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities, sometimes with the cooperation of officials in other corporations or affiliates. Scandals are often only the 'tip of the iceberg'. They represent the visible catastrophic failures. Satyam Computer Services a company based in India (now known as Mahindra Satyam). This is the most recent scandal in India (declared only in 2009). The accounting fraud in this case involves overstating cash ($1.5 billion) and receivables by $100 million and understating liabilities by $250 million. Taken together, Satyams assets were inflated by about $1.85 billion.
About the Company
Satyam Computer Services Ltd was one of the leading global consulting and IT services company that offered end-toend IT solutions for a range of key verticals and horizontals. Satyam Computers had domain expertise in verticals such as Automotive, Banking & Financial Service, Insurance & Healthcare, Manufacturing, Telecom, Infrastructure, Media, Entertainment, and Semiconductors. Satyam had nearly 40,000 employees on its rolls, working in development centers in India, the USA, the UK, the UAE, Canada, Hungary, Singapore, Malaysia, China, Japan and Australia. Satyam Computers' network was spread over 55 countries across 6 continents. Satyam served over 558 global companies including over 163 Fortune 500 corporations. Satyam Computers was founded in June 1977 as a private limited company by Ramalinga Raju along with one of his brothers-in-law, DVS Raju. Ironically, Satyam is a Sanskrit word that loosely translates into English as "truth" or "correct". Achievements of Satyam Computers:
First Indian IT Company to get ITAA Certification for Y2K Solutions. Satyam Infoway is the first Indian Internet company to be listed on NASDAQ. Declared one of '100 Most Pioneering Technology Companies' by World Economic Forum, Davos in the year 2000. First organization in the world to launch Customer-Oriented Global Organization training. First ISO 9001:2000 Company in the world as certified by BVQI. Ranked by the Brown-Wilson Group as the number two outsourcing vendor globally in the year 2006.
The Scandal
On the 7th January 2009, the company Chairman Ramalinga Raju resigned after notifying its board members and the SEBI that he had falsified accounts. Ramalingam Raju affirmed in a letter to the board that neither he nor the managing director had benefited financially from the inflated revenues. He confessed that none of the board members had any knowledge of the situation in which the company was placed. He noted that Satyams balance sheet as on the 30th of September, 2008, carried inflated figures for cash and bank balances of Rs 5,040 crore (as against Rs 5,361 reflected in the books). Furthermore, it carried an accrued interest of Rs 376 crore which was non-existent. An understated liability of Rs 1,230 crore on account of funds was arranged by himself. An overstated debtors position of Rs 490 crore (as against Rs 2,651 crore in the books). He stated that: What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly (annualized revenue run rate of Rs 11,276 crore in the September quarter of 2008 and official reserves of Rs 8,392 crore). As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. It was like riding a tiger, not knowing how to get off without being eaten. Raju had appointed a task force in the last few days before revealing the news to address the situation. Satyams official website noted that We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation said Mr. Ram Mynampati, Interim CEO (pending ratification by the Board) and Member of the Board, who has been mandated by the Board to steer the company through this crisis. The New York Stock Exchange halted trading in Satyam stock as of January 7, 2009. Indias National Stock Exchange had announced that it will remove Satyam from its S&P CNX Nifty 50-share index from January 12.
The Aftermath
On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. "The current board has failed to do what they are supposed to do. The credibility of the IT industry should not be allowed to suffer." said Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAI issued showcause notice to Satyam's auditor PricewaterhouseCoopers (PwC) on the accounts fudging. "We have asked PwC to reply within 21 days," ICAI President Ved Jain said. On the same day, the Crime Investigation Department (CID) team picked up Vadlamani Srinivas, Satyam's then-CFO, for questioning. He
was arrested later and kept in judicial custody. On 11 January 2009, the government nominated noted banker Deepak Parekh, former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to Satyam's board. Analysts in India have termed the Satyam scandal India's own Enron scandal. Some social commentators see it more as a part of a broader problem relating to India's castebased, family-owned corporate environment. Immediately following the news, Merrill Lynch (now a part of Bank of America) and State Farm Insurance terminated its engagement with the company. Also, Credit Suisse suspended its coverage of Satyam. It was also reported that Satyam's auditing firm PricewaterhouseCoopers will be scrutinized for complicity in this scandal. SEBI, the stock market regulator, also said that, if found guilty, its license to work in India may be revoked. Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues, which was stripped from them in the aftermath of the scandal. The New York Stock Exchange has halted trading in Satyam stock as of 7 January 2009. India's National Stock Exchange has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on 12 January. The founder of Satyam was arrested two days after he admitted to falsifying the firm's accounts. Ramalinga Raju is charged with several offences, including criminal conspiracy, breach of trust, and forgery. Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008. In New York Stock Exchange Satyam shares peaked in 2008 at US$ 29.10; by March 2009 they were trading around US $1.80. The Indian Government has stated that it may provide temporary direct or indirect liquidity support to the company. However, whether employment will continue at pre-crisis levels, particularly for new recruits, is questionable. On 14 January 2009, Price Waterhouse, the Indian division of PricewaterhouseCoopers, announced that its reliance on potentially false information provided by the management of Satyam may have rendered its audit reports "inaccurate and unreliable. On 22 January 2009, CID told in court that the actual number of employees is only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing INR 20 crore rupees every month for paying these 13,000 non-existent employees.
The New Beginnings
On 5 February 2009, the six-member board appointed by the Government of India named A. S. Murthy as the new CEO of the firm with immediate effect. Murthy, an electrical engineer, has been with Satyam since January 1994 and was heading the Global Delivery Section before being appointed as CEO of the company. The two-day-long board meeting also appointed Homi Khusrokhan (formerly with Tata Chemicals) and Partho Datta, a
Chartered Accountant as special advisors. On 13th April 2009, via a formal public auction process, a 46% stake in Satyam was purchased by Mahindra & Mahindra owned company Tech Mahindra, as part of its diversification strategy.
The Current Scenario
Effective July 2009, Satyam rebranded its services under the new Mahindra management as "Mahindra Satyam" with a new corporate website www.MahindraSatyam.com. C.P Gurnani is the current CEO. As a result of the scandal, under the directions of the new Mahindra management team, Satyam Computer Services restated its financial results for the period 2002 to 2008. These restated results were published in September 2009. The company had reported a consolidated net loss of Rs 233.3 crore for the JulySeptember quarter of 2010. Speaking at a press conference, Vineet Nayyar, chairman of the company said the consolidate cash and cash equivalents at Rs 30 crore compared to Rs 26 crore. We will take three [years] for a turnaround, he informed.[9] Even though the company got 245 crores profit in Q4 for 2010-2011, but due to outside payments nearly 570 crores for SEK,UNIPAID and Class Action Suit in Q4 (Total 641 crores for the year 2010-2011 ),the company had reported a consolidated net loss of Rs 327 crore for the Jan-Mar quarter of 20102011.IT firm Mahindra Satyam, posted a consolidated net profit of Rs 225.2 crore for the quarter ended June 30, 2011. During the quarter, the company added 2,172 people (net), taking total headcount to 31,438 as of June 30, 2011
