Satyam - A gigantic fraud
The unravelling of what is possibly the biggest scam in Indian corporate history involving the manipulation of accounts by Satyam Computer Services Chairman B. Ramalinga Raju is shocking beyond belief. In a letter to the other board members, Mr. Raju, realising that the game was up, has admitted to systematically fudging the company’s accounts over the years. The company’s balance sheet as on September 30, 2008, showed an inflated Rs.5,040 crore by way of cash and bank balances and a non-existent accrued interest of Rs.376 crore. The possible motives behind Mr. Raju’s actions — his letter absolves the other board members as well as the top management personnel of complicity — can only be guessed at this point in time but they most certainly have to do with projecting the company in a much stronger position than what it actually was in order to boost market valuations and business prospects, keeping it in the top ranks of the IT majors. The reckless strategy to window-dress the accounts artificially boosted its key parameters but as Mr. Raju has belatedly realised, a systematic falsification of accounts once begun builds up to monstrous proportions. Continuing the fiction of spectacular earnings, the latest quarterly results last September overstated the operating margin as Rs.649 crore, as against the actual Rs.61 crore.
It passes one’s understanding how malfeasance of such a magnitude could escape the eyes of the auditors, with even cash balances apparently remaining unconfirmed with banks. It is puzzling too that such a huge hole in the finances did not show up somewhere and could not be spotted by the numerous investment analysts or the several investment banks and institutional investors holding shares in Satyam. The Satyam fiasco casts a shadow over the nature of corporate governance in India. Satyam was in the news recently for its abortive attempts to take over two infrastructure companies run by the family of Mr. Raju. That, though viewed widely as a governance failure reflecting particularly on the role of independent directors, now appears to be a relatively minor blip. Stock markets which were seen rallying over the past few days went down sharply, with Satyam leading the fall. Indian corporates, especially the IT companies that are now familiar names in the international bourses, would have to strive hard to minimise the impact of the Satyam scam. Regulators in India and the United States, where Satyam’s ADRs are listed, need first to identify the gaps that led to the perpetration of such a gigantic fraud for so long and put in place systems and procedures to prevent their recurrence. A start could be made with changes in audit procedures and in the role and the responsibility of auditors.
0 comments:
Post a Comment