Digitising Thoughts - Latest Comments in Satyam fraud, unravelling the mystery

Re: Satyam fraud, unravelling the mystery

KARAN — Mon, 19 Jan 2009 08:20:23 -0000

great article ; its now getting clear about the issue..

Re: Satyam fraud, unravelling the mystery

Ankit — Wed, 14 Jan 2009 06:27:32 -0000

Hi Triplicani,

Its a nice analysis . But here what do i think is that there must some involvement by the third parties for sure. Which helped the Company in recording bogus sales and then later Raju would have paid them by illegal route then takes back the sane from them as sales collections. But here the biggest questions lies is how come he has shown 3300 crore as a FD..There must some mystery behind this and I am sure going forward we will know these details...

Re: Satyam fraud, unravelling the mystery

triplicani — Tue, 13 Jan 2009 05:58:53 -0000

Sunil,

Welcome to my blog.

Yes. I also think that it is not right for the government to give financial package to Satyam. If that is so, what is the relief given to all those companies that run their business honestly?

Re: Satyam fraud, unravelling the mystery

sunil — Tue, 13 Jan 2009 05:48:31 -0000

Hi,

Nice explanation.

There is a possibility that govt might bail out SATYAM by providing Monetary Help ?
How far is this justified ?

There are so many people on Satyam payroll, who are getting Lavish salary. Is it justified to give the poor man's Tax money for the employees, who spend most of it on Luxury life, pubs, bars etc.....

Sunil

Re: Satyam fraud, unravelling the mystery

triplicani — Mon, 12 Jan 2009 09:10:34 -0000

I think one should use the SEBI and MCA websites for this purpose.

One can also ensure action by using the RTI Act effectively; I have referred one such action tip in my post http://www.sathyamurthy.com...

In the same post there is a reference to my post on the RTI Act.

Re: Satyam fraud, unravelling the mystery

Narayanan — Mon, 12 Jan 2009 06:55:31 -0000

Mr SK Raman,

There is a whistle blower website, www.SYSTEMSURGERY.com

Re: Satyam fraud, unravelling the mystery

triplicani — Mon, 12 Jan 2009 02:03:09 -0000

Dear CA. S K Raman,

Welcome to my blog.

Are you by any chance brother in law of Mr. T P Anand?

Regards
R Sathyamurthy

Re: Satyam fraud, unravelling the mystery

S K Raman — Mon, 12 Jan 2009 01:51:41 -0000

Good write up. (I am a chartered accountant too)I am certain that there are several companies who fudge their accounts to varying degrees.Is tehre any web site where whistle blowers can bring to light such case. In fact I know of atleast 2 companies & am itching to tell the right authorities! Punishing by publicly disgracing the concerned professionals like the CFOs & CO secys will have a salutary effect as these are the ones who give 'ideas' as to HOW to do it!!!

Re: Satyam fraud, unravelling the mystery

XD — Sat, 10 Jan 2009 23:19:46 -0000

Remember Harshad Mehta and the Biscuit king Pillai. Raju's story will be the same. Reason vested interest will take care of him beofre he spills the beans.

Re: Satyam fraud, unravelling the mystery

triplicani — Fri, 09 Jan 2009 01:48:17 -0000

Vijayasarathy,

I found the body language of Mr. Mynampati positive. However, I did find two contradictions in his address.

1. He first said the CFO is not coming to the office citing personal reasons but will be in next week. After few minutes, he said CFO has resigned and his resignation was not yet accepted by the Board. When a reporter countered him with this contradiction, he first camouflaged his reply and when another reporter once again repeated it, he cleverly wriggled out saying the CFO also has to serve a notice period and that is why he had stated that CFO will come to work next week. :)

2. He feigned ignorance about the net margins of Satyam, despite being a director on the Board. It is ok if that was said about the rest of the "leadership team". But, he cannot say that he doesn't know about the net margins, especially when he should be completely aware of the net margins from the group he was heading besides being a director. In addition, for a big company like Satyam, I would imagine that an exhaustive presentation will be made to the Board as part of a MIS dosier which should certainly include a complete drill down of margins from various business segments both at gross and at net levels. So, he could have spotted if his division margins were shown lower or higher than what he expected to see.

3. He told in the press conference that he received the mail from Mr. Raju and within 30 minutes of getting that letter all the leadership team had a conference call with Mr. Raju. Why did not ask Mr. Raju more details about the contents of the letter in that conference call? Why did not he ask Mr. Raju where he can contact Mr. Raju in case of need? How he fathomed that he might not any more need the inputs of Mr. Raju to run the business within 24 hours of Mr. Raju quitting? Why he said he didn't know the whereabouts of Mr. Raju when he had had a conference call with Mr. Raju and most likely asked Mr. Raju how to get in touch him in case of need?

Re: Satyam fraud, unravelling the mystery

Vijayasarathy — Fri, 09 Jan 2009 01:25:36 -0000

Hi Triplicani,

As I was watching the Press Con given by Mr. Mynampati and party, I could see that most of your analysis is matching. I will be surprised if the final chit writes off Mr. Mynampati not being in the party by M. Raju.

For no valid reasons Mr. Mynampati was discarding all the questions from the reporters with simple answers like "We have to ascertain the actual", "I do not know where Raju is", "We have not spoken to him after the mail from him (This is more surprising since no Board would have ignored the letter and not bothered to speak to the accused)", "It is too early to comment on PWC". He is very much there in the list. We surely will not be getting the actual list of group as it may include few local and central politicians.

There are rumours that the employees of Satyam asking/protesting to sack Mr. Mynampati from the Organisation.

They are not even able to give a clear number of the employees as on date. In a company like Satyam there must definitely be a HRMS system which can provide the as on date details. Why the so-called talented team has not taken it before getting into Press Conference?

Coming to my view on the topic:

By the time Mr. Raju decided to go public, he would have easily secured few thousands of crores under his belly. If he had not come public, as you said the matter would have come out automatically and Mr. Raju will be accused and imprisoned. To avoid such bad scenarios and knowing how Indian Law and Indian Corporate Governance deals and the time frame it takes, he can always resort for some other arrangement.

Having secured huge amount of money, Mr. Raju should have thought of entering into a different line of business under some of his (Not known to public) relations. His interest towards construction business should be noted here.

Also the current market trend will go on for another 6 to 8 months. In this case to manage and run operations as it is would have been a herculean task considering there is no actual Cash/Bank balance left.

From one of the replies I notice that there might be a retrenchment of 10000 employees. Mr. Raju and team has not taken money but also made these employees life hanging. Thinking off the cost of living and job market today, I wish and pray good for all the Satyam employees to get a better & faster change.

Ultimately whether this was done for self benefits or retaining the company's position at the top, the main factor involved here is Vitamin "M (Money)".

Re: Satyam fraud, unravelling the mystery

triplicani — Thu, 08 Jan 2009 12:38:12 -0000

Dear Radhakrishnan,

Welcome to my blog.

Yes it appears like an action film. Telugu one ;-)

Re: Satyam fraud, unravelling the mystery

Radhakrishnan — Thu, 08 Jan 2009 12:25:11 -0000

good post. simple and clean.
to my mind this scam could not have happened as 'one person'. visible or not, there would have been at least two or more people in this, because like a don in a hindi movie, he certainly would have sidekicks who knew what/how/when it happened. with accounting procedures itself systematized, the fraud was probably played out in full public view all along by a set of people. Brazen it out, as they say. for all you know, the end game could well have been done to shield another half a dozen unnamed people. for jeopardising 50,000 careers at the drop of a hat [letter!], and at least 200,000 dependent people's lives, there can be no qualms in the harshest legal action.

Re: Satyam fraud, unravelling the mystery

triplicani — Thu, 08 Jan 2009 08:36:39 -0000

Many people in the finance department of Satyam, starting from CFO are answerable to these frauds. See, if a Company builds a coterie of "yes men" within the finance department and carries out secret missions like these, it will fail all internal checks. Mr. Raju, to help accommodate his frauds, would have ensured that a loose system of internal controls were in place. For example, in a good organisation, every transaction prior to entry into the accounting system will be prepared by someone, verified/ checked by someone, approved by someone else and then, someone else will input it in the system while still another person will verify the accuracy of data entry and approve it in the system.

Most companies will also have authority limits for transactions that can be approved in the system.

It is possible that, for these bogus transactions, these control chains might have been not followed or the internal checks circumvented.

Re: Satyam fraud, unravelling the mystery

Vijay — Thu, 08 Jan 2009 08:04:04 -0000

Hi Satya - real enlightening write up on this scam.

Question is, can CFO, other signing authorities and auditors get away from this fraud. Its quite unbelievable that Mr. Raju singularly did all this without anyone's help.
Though I'm not an expert in accounting, do the basics - dont these guys do interim internal checks - dont department heads own up to the revenues generated - how is that no one noticed this gap all these yrs.
As I keep saying to my self, its utterly unbelievable that insiders wouldnt have noticed these gaps.

Well - technicality apart, these guys are answerable to all the stakeholders and their peers in the industry to have brought this shame.

Re: Satyam fraud, unravelling the mystery

triplicani — Thu, 08 Jan 2009 04:36:36 -0000

Karan,

Welcome to my blog. Interesting thoughts.

One cannot also rule out possibilities of inflated expenses and siphoning of money out!

Re: Satyam fraud, unravelling the mystery

triplicani — Thu, 08 Jan 2009 04:21:41 -0000

L Srini,

//The Software services industry the world over does not have shipment advices, gate passes, delivery receipts, physical stock verification reports etc in the traditional manner.. This is due to the nature of the business.//

I agree with you. I attempted to give an idea of how auditors generally verify a sale transaction.

In the case of software services, it would follow the path of, verifying the contract, billing terms (for BPO it should be transaction based charged also taking into account degree of complexity handled), billing cycle, customer acceptance of the invoice raised, logs of the transaction tracking software, serial number of the customer query handled (think of the last reply you received from a bank or insurance company for a online query made by you, didn't it have a serial number?) etc.

I will be writing my next post on Corporate Governance. That is a phrase widely used right now.

Re: Satyam fraud, unravelling the mystery

triplicani — Thu, 08 Jan 2009 04:12:35 -0000

Vijayasarathy,

You are welcome to add your 2 cents using this comment window :-)

It is always nice to hear new view points.

Re: Satyam fraud, unravelling the mystery

Karan — Thu, 08 Jan 2009 04:11:33 -0000

First of all, congrats on a great post. I just wanted to add a couple of thoughts which you could include maybe in this or the next post.

On the matter of the low profit margins, I think the one thing that explains this is a statement in the letter
where Raju claimed that they were running operations to look like their inflated revenues, and therefore the profit margins were even more squeezed. So for example, in a sense, they had people and costs associated with that 2700 cr revenue figure, which if it had been true, would have 24% profit. In reality, they have much less revenue (2112 cr) and the costs associated with the 2700 crores. Thats why the margin is 3% for this quarter. If the costs are rationalized, they should be comparable margins with anyone else.

Second - a very interesting article in the Economic Times (Page 10 in Delhi edition) has an explanation for the need for fraud. Mr. Raju and his family (personally and through Maytas) are apparently one of India's largest landowners. This land was all bought by the the shares used as collateral and therefore needed to be propped up. Since all major land deals in India are politically rigged, Mr. Raju needed to pay huge bribes. He had been paying bribes in form of land and not cash, but now since the elections are approaching, the politicians began demanding cash. This 'confession' has probably come under pressure to stop a major investigation of all this land-political tieup.

Re: Satyam fraud, unravelling the mystery

triplicani — Thu, 08 Jan 2009 04:11:31 -0000

Kamesh,

Welcome to my blog and thanks.

Re: Satyam fraud, unravelling the mystery

triplicani — Thu, 08 Jan 2009 04:10:16 -0000

R Sridhar,

Welcome to my blog and thanks for the feedback.

I am sure Auditors would have gone through the process of asking and taking confirmations from the bankers directly. However, when you deal with banks abroad, it is quite possible that cooked confirmations were provided. We will know only after PWC comes out with their side of the story. But, they are in a precarious position right now.

Re: Satyam fraud, unravelling the mystery

triplicani — Thu, 08 Jan 2009 04:07:18 -0000

Welcome Trailblazer and thank you.

Re: Satyam fraud, unravelling the mystery

Kamesh — Thu, 08 Jan 2009 03:59:52 -0000

Triplicani

Thank you for this analysis.

Best Wishes

Re: Satyam fraud, unravelling the mystery

R.Sridhar — Thu, 08 Jan 2009 03:33:33 -0000

Satya

Excellent analysis. But this could have been easily detected if the auditors just followed normal auditing practices. Confirmation of balances which auditors send directly to the crs and drs could have easily nailed the scam. But its still too early to comment as the we don't have the full details as of now.

Re: Satyam fraud, unravelling the mystery

Trailblazer — Thu, 08 Jan 2009 03:09:51 -0000

Very well analyzed. Raju was a smart man.