The biggest corporate scandal in India, Satyam Scandal where the promoter and chairman Ramalinga Raju fudged the accounting inflating assets and understating liabilities manipulating accounts by $1.47 billion (present value is approximately Rs. 9000 Crores).
- Inflating Receivables (Sales) – He raised fake invoices and used an emergency system of feeding the same to the company’s inventory management software thus bypassing validations. He also generated a “Super User” code that enabled him to hide the fake invoices for obvious reasons. CBI said in a statement
Investigations revealed that the accused have already entered 6,603 out of these false and fabricated invoices amounting to Rs 4,746 crore into their books of accounts thereby inflating the revenues of the company to this tune.
- Understated Liability – It amounted to Rs. 1230 Crores.
- Overstating no. of Employees –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 Rs. 20 Crores every month for paying these 13,000 non-existent employees.
He explained why he confessed and what derived him to state all the frauds he did in the past years
Because of the present global financial situation, disparity shown in the balance sheet became difficult to cover up.
Things have gone out of control. Since I have been instrumental in starting the company, I wish it to be a leading company and could not bear the thought of it coming down. That is the reason I have money to save the situation.
Since about seven years, we wanted to show more income in the account to avoid others from involving in company affairs and any other possible hostile takeover situation, and hence, manipulated the balance sheet to attract more business and show unavailable amount as available cash in hand.
This process continued for the last seven years and margin amount shown got increased much more year after year.
Excerpts from Official Statement of Raju from his resignation letter to the Board of Directors, Satyam Computers Services Ltd.
Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was the poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.
In the last two years a net amount of Rs 1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin trigger.