About Satyam Computers
Rama Raju and Ramalinga Raju together established the renowned Satyam Computer Services Empire in 1987. This firm was named Satyam, which in the most-primeval Indian language Sanskrit, means the “truth”. Despite this, the firm neglected the meaning of its name itself and went on to follow an unethical path to success: the path of deception. However, one can never deceive the truth, and so was the case with Satyam Computers. Apart from the financial crisis of 2008, India went through a moral crisis as well. This may be attributed to the exposure of The Satyam Computers Scam on the 7th of January, 2009.
The firm initially began with only 20 employees contributing IT and BPO services, but soon it expanded to more than 50,000 employees. As per Forbes, it operated in about 60 countries and became the fourth-largest IT software exporter in its home country. At its zenith, the company enjoyed a CAGR of 40% and a hike of 300% in the stock prices. The business went on to receive The Golden Peacock Award for corporate accountability in 2008. However, later it came to light that it had manipulated its accounts, proving to be a disgrace for this earnest award.
Unfolding of Satyam scam
The 7th of January, 2009 marked the beginning of the moral crisis in India with the resignation of Mr. Ramalinga Raju. He also made an eye-opening confession that he had manipulated accounts for about INR 7000 crores. Mr. Raju had been engaged this scam since 1999. He had been dilating the quarterly profits to meet the analyst’s expectations. Once, the results announced by him overstated the quarterly revenues by 75% and the profits by 97%. The company’s global team for audits was also involved in this.
In addition to this, he used his computer to inflate the balance sheet. The global head for internal audit assisted him in creating fake customer identities and fake invoices, to misguide people about the revenue. This enabled the company to give a counterfeit impression of success. This so-called success not only gave it easier access to loans but also resulted in share appreciation.
Nevertheless, he did not stop here and went on to create documentation of fake employees and withdraw salaries on their behalf. This increased share price aided Satyam Computers to clear out as many shares as possible. This permitted Raju to reap profits from their sales at higher prices. He used to extract approximately 3 million dollars every month in the name of employees who weren’t real.
Where did this money go?
Apart from setting up the fourth-largest IT sector company in India, Mr. Raju had a keen interest in the real estate business. The real estate business was booming in the early 2000s. Consequently, he set up a real estate company called Maytas and siphoned off all the money in real estate, hoping to make greater profits. Unfortunately, every sector was adversely affected during the global recession, and real estate was not an exception. What made the situation worse was the overstated assets and under-disclosed liabilities owing to the manipulation of financial statements.
How was this scam hidden for almost a decade?
The answer lies in the negligence of their auditor PriceWaterhouseCoopers (PwC). As an auditor, PwC had to first examine the financial records and then ensure whether they were accurate or not. They overlooked the 7561 fake bills after auditing Satyam for almost a decade. The auditor could have easily done a simple check with the banks, to examine the validity of the bills. Apart from that, any company with such an enormous amount of reserves would invest them in an interest-yielding account, which was not the case with Satyam Computers. Later, it was observed that they simply ignored these noticeable signs in the light of the fact that they were paid twice the fees for their services.
