<p>Finally, after five and a half years, the public have access to a report from a regulator – Securities and Exchange Board of India (SEBI), on how, who and what of the fraud at Satyam Computer Services Limited that besmirched corporate India and shook the country. <br /><br /></p>.<p>The comprehensive details pieced together in 65 pages confirm some of what is already known but debunks others.<br /><br /> While the report corroborates that Ramalinga Raju had a team working for him to produce fake orders, invoices, receivables, monthly bank statements and fixed deposit receipts to manipulate the financials, the cash perceived to have been swindled by the promoters is not Rs 5,600 crore.<br /><br />According to SEBI, Ramalinga Raju, chairman, and four others including Rama Raju, managing director, Vadlamani Srinivas, chief financial officer, G Ramakrishna, vice president and V S Prabhakar Gupta, head of internal audit, were in possession of ‘unpublished price sensitive information’ and profited from sale of shares of Satyam Computer in the open market that were in violation of the SEBI Act of 2003.<br /> <br />Hence, the regulator has debarred these five individuals for 14 years from the securities market and has asked them to refund within 45 days from the date of order Rs 1,846 crore along with interest of 12 per cent for each of the last five years. However, the SEBI order is subject to an appeals process before it becomes binding on the defendants.<br /><br />Despite the bygone years, the SEBI order is still a fascinating read. The incredible ease and sheer duration of the scam is a damning indictment on the statutory auditor and the Board of Directors. <br /><br />While more than 53,000 employees were busy delivering top-notch services to clients across the globe, a small and trusted coterie headed by founder and chairman Ramalinga Raju and his brother Rama Raju were running a parallel enterprise to produce fake documents that were used to pad up financials and inflate earnings at the end of every quarter. The company had more than 125 bank accounts with various banks around the globe but used only a few for manipulation.<br /><br />Over a five-year period, the fake enterprise had produced 7,651 bogus invoices on existing customers and more than 27 invoices on non-existent customers that allowed the company to overstate its revenue by Rs 4,782 crore.<br /><br /> Fictitious fixed deposit receipts of Rs 3,309 crore along with phony interest payments and a manipulation of balance in the Bank of Baroda, New York branch account, were used to inflate the cash balance by Rs 5,250 crore. <br /><br />Hence, the fraud was thought to be in the magnitude of Rs 5,600 crore. However, according to the regulator, money was not siphoned off by Ramalinga Raju as there was very little cash in the company’s bank accounts amounting to less than Rs 20 crore.<br /><br />Fraud perpetrator<br /><br />The SEBI order categorically states that the chief perpetrator of the fraud was Ramalinga Raju. The modus operandi was the use of IMS or the Invoicing Management System tool. <br /><br />Since this system allowed manual importing of data from an Excel spreadsheet, all data required for an invoice were populated and uploaded into IMS using the admin ID and password provided by Ramakrishna to his team. <br /><br />The underlings in the finance team were asked to hide these invoices while updating collections which they dutifully did since it was coming from higher ups. The ‘daily bank statement’ from banks was discarded for a ‘monthly bank statement’ prepared by the fake enterprise. <br /><br />These fictitious cash and bank balance statements and debtor’s position were provided to the team that was responsible for preparing the books of accounts of the company. <br /><br />There are other interesting facts that emerge from the SEBI report. According to the regulator, the internal audit team had detected a mismatch between the invoices in IMS and Oracle Financials in the first quarter of 2007-08, more than one and a half years before Ramalinga Raju’s confession, but the team was forced to file false reports on orders from chairman’s office that in effect deemed the matter as closed. <br /><br />The report also reflects poorly on the statutory auditor who failed to detect the scam several times over leading to questions of connivance with management.<br /><br /> Many of the bank statements produced to the external auditors had bank logo on the wrong side, some had missing deposit numbers and addresses while some others had signatures of executives who were not employees of the bank on the mentioned dates. This, according to the regulator, must have raised enormous suspicion of documents being forged and fraudulent.<br /><br />Although much delayed, the regulator must still be commended for decoding India’s biggest corporate fraud. SEBI blames the delay on the tactics adopted by the accused and the company as well as statutory auditor. <br /><br />Moreover, the regulator’s penalty is meek and without punitive damages. Hopefully, punishment by the special court due anytime now will be more appropriate to fit the crime and will include much harsher sentences on this lot as well as on the Board of Directors for dereliction of fiduciary duty and statutory auditor for gross negligence.</p>
<p>Finally, after five and a half years, the public have access to a report from a regulator – Securities and Exchange Board of India (SEBI), on how, who and what of the fraud at Satyam Computer Services Limited that besmirched corporate India and shook the country. <br /><br /></p>.<p>The comprehensive details pieced together in 65 pages confirm some of what is already known but debunks others.<br /><br /> While the report corroborates that Ramalinga Raju had a team working for him to produce fake orders, invoices, receivables, monthly bank statements and fixed deposit receipts to manipulate the financials, the cash perceived to have been swindled by the promoters is not Rs 5,600 crore.<br /><br />According to SEBI, Ramalinga Raju, chairman, and four others including Rama Raju, managing director, Vadlamani Srinivas, chief financial officer, G Ramakrishna, vice president and V S Prabhakar Gupta, head of internal audit, were in possession of ‘unpublished price sensitive information’ and profited from sale of shares of Satyam Computer in the open market that were in violation of the SEBI Act of 2003.<br /> <br />Hence, the regulator has debarred these five individuals for 14 years from the securities market and has asked them to refund within 45 days from the date of order Rs 1,846 crore along with interest of 12 per cent for each of the last five years. However, the SEBI order is subject to an appeals process before it becomes binding on the defendants.<br /><br />Despite the bygone years, the SEBI order is still a fascinating read. The incredible ease and sheer duration of the scam is a damning indictment on the statutory auditor and the Board of Directors. <br /><br />While more than 53,000 employees were busy delivering top-notch services to clients across the globe, a small and trusted coterie headed by founder and chairman Ramalinga Raju and his brother Rama Raju were running a parallel enterprise to produce fake documents that were used to pad up financials and inflate earnings at the end of every quarter. The company had more than 125 bank accounts with various banks around the globe but used only a few for manipulation.<br /><br />Over a five-year period, the fake enterprise had produced 7,651 bogus invoices on existing customers and more than 27 invoices on non-existent customers that allowed the company to overstate its revenue by Rs 4,782 crore.<br /><br /> Fictitious fixed deposit receipts of Rs 3,309 crore along with phony interest payments and a manipulation of balance in the Bank of Baroda, New York branch account, were used to inflate the cash balance by Rs 5,250 crore. <br /><br />Hence, the fraud was thought to be in the magnitude of Rs 5,600 crore. However, according to the regulator, money was not siphoned off by Ramalinga Raju as there was very little cash in the company’s bank accounts amounting to less than Rs 20 crore.<br /><br />Fraud perpetrator<br /><br />The SEBI order categorically states that the chief perpetrator of the fraud was Ramalinga Raju. The modus operandi was the use of IMS or the Invoicing Management System tool. <br /><br />Since this system allowed manual importing of data from an Excel spreadsheet, all data required for an invoice were populated and uploaded into IMS using the admin ID and password provided by Ramakrishna to his team. <br /><br />The underlings in the finance team were asked to hide these invoices while updating collections which they dutifully did since it was coming from higher ups. The ‘daily bank statement’ from banks was discarded for a ‘monthly bank statement’ prepared by the fake enterprise. <br /><br />These fictitious cash and bank balance statements and debtor’s position were provided to the team that was responsible for preparing the books of accounts of the company. <br /><br />There are other interesting facts that emerge from the SEBI report. According to the regulator, the internal audit team had detected a mismatch between the invoices in IMS and Oracle Financials in the first quarter of 2007-08, more than one and a half years before Ramalinga Raju’s confession, but the team was forced to file false reports on orders from chairman’s office that in effect deemed the matter as closed. <br /><br />The report also reflects poorly on the statutory auditor who failed to detect the scam several times over leading to questions of connivance with management.<br /><br /> Many of the bank statements produced to the external auditors had bank logo on the wrong side, some had missing deposit numbers and addresses while some others had signatures of executives who were not employees of the bank on the mentioned dates. This, according to the regulator, must have raised enormous suspicion of documents being forged and fraudulent.<br /><br />Although much delayed, the regulator must still be commended for decoding India’s biggest corporate fraud. SEBI blames the delay on the tactics adopted by the accused and the company as well as statutory auditor. <br /><br />Moreover, the regulator’s penalty is meek and without punitive damages. Hopefully, punishment by the special court due anytime now will be more appropriate to fit the crime and will include much harsher sentences on this lot as well as on the Board of Directors for dereliction of fiduciary duty and statutory auditor for gross negligence.</p>
