ECON F212

Assignment

By Team 9
The Saga of Satyam Fraud -
Insights and Analysis
Introduction to Company

● Satyam was founded in 1987 by Mr. B Ramalinga Raju.

● The company offers consulting and information technology
services to various sectors :
○ Engineering
○ Supply Chain Management
○ Product Development, etc.
● Satyam was listed with NSE, BSE and New York Stock Exchange.
● After the scam in June 2009, its brand name became “Mahindra
Satyam” after acquisition by Mahindra Group.
Mastermind of Scam

● Chairman of Satyam, Mr Ramalinga Raju was the person behind

the scam.
● On 7 January 2009, he resigned from Satyam.and admitted to
corporate fraud.
● He admitted to overstating company’s cash reserves by $1.5
billion USD. Also, assets were siphoned by him.
● He is currently held in Chanchalguda jail for charges: Fraud,
forgery, cheating, embezzlement of money and insider trading.
Constituents of Scam
Ghost Employees

● On 22 January 2009, CID told in court that number of employees

were 40000 instead of 53000 reported.
● Mr Raju had been withdrawing Rs 20 crores per month to pay for
these 13000 non-existent employees.
● Due to this, the company’s Net worth decreased.
● So, to increase it, he tampered with assets and liabilities, shown
in next slide.
Overstated Assets and Understated
Liabilities

● Liabilities of 1230 crores have been understated as none in

the book

● The assets have been overstated by USD$ 1.47 billion.

Overstated Debtors

● Satyam reported debtors worth Rs 2651 crores.

● Actual debtors were Rs 2161 crores.
● Overstatement of Rs 490 crores.
● This overstatement was done to show false income in the form
of loan interests.
Overstated Revenue

● Satyam reported revenue worth Rs 2700 crores.

● Actual revenue were Rs 2112 crores.
● Overstatement of Rs 588 crores.
● Mr Raju created fake customer accounts and fake invoices with
help of auditors to show fake sales.
Fabricated balance sheet and income statement
of Satyam: as of Sept 30, 2008
ITEMS RS. IN CRORE Actual Reported Difference
Cash and bank balance 321 5361 5040

Accrued interest on bank fixed Nil 376.5 376

deposits

Understated liability 1230 None 1230

Overstated debtors 2161 2651 490

TOTAL - - 7136

Revenues(Q2 FY 2009) 2112 2700 588

Operating profits 61 649 588

Imaginary Fixed Deposits

● Ten Imaginary fixed deposits were owned Mr Raju.

● He admitted that these fixed deposits which grew from Rs 3.35
crores in 1998-99 to Rs 3320.19 crore in 2007-08 are all fake.
Role of Maytas

● Mr Raju had a family business named Satyam spelled backward

named Maytas.
● It includes Maytas Properties and Maytas Infra Limited and was
founded in 2005.
● It was owned by his sons.
● There were allegations that funds from Satyam were diverted to
Maytas.
Role of Maytas

● Maytas was genuine company and showed genuine profits.

● Mr Raju had 37% stake in Maytas and was Board member.
● The only way to reduce the difference between actual value and
book value of assets in Satyam was to purchase genuine assets
from the fake cash shown in balance sheet.
References

● https://en.wikipedia.org/wiki/Satyam_scandal.
● www.slideshare.net/KamaljeetSingh3/satyam-scam-9772598.
THANK YOU !