THE SATYAM "FRAUD" STORY:
In sequel to my last post , today I read the latest ET news which finally led to
rest days of speculation. The final nail has been hit on the coffin.What however perplexes me is the role of auditors who are supposed to scrutinise each and every element of the Balance Sheet, and P&L statement.Their guilt is of a much higher degree than "Raju" who finally had the guts to accept and bring to light the fraud of epic proportions. This was the job of auditors as all stakeholders hold their trust on the financial data they provide. Looks like a repeat of the Lehman Bros case.
But for sure it brings into question the role of auditors and accounting discipline.A least my faith in the accounting norms of all companies has been terribly shaken.Thank God , I did not invest my hard earned money for "such" a fraud company . But I feel really pained for thousands of such minority stakeholders whose money has gone down the drain with little hope of recovery . I have learnt one thing from this entire fiasco : " Dikhawe pe naa jaao, apnee akal lagao..." When audited results cannot be trusted , whom do we trust.......
The ET article dated 7 Jan 09 explains in detail:
Asatya vachan Raju takes Satyam down; stock falls 62%
7 Jan 2009, 1159 hrs IST, ECONOMICTIMES.COM Print EMail Discuss Share Save Comment Text: MUMBAI: Satyam Computer Services Ltd’S Mr. B Ramalinga Raju has tendered his resignation
as chairman of the company. Reacting to the news, shares Satyam's board members of the IT company were down 62 per cent at Rs 64. Also, immediately following the news,
DSP Merrill Lynch has terminated its engagement with the company.
Raju will continue in the position only till such time the current board is expanded.
In a letter to the board of directors, Raju states that Satyam’s balance sheet as on Sep
30, 2008, carries an inflated (non-existent) cash and bank balances of Rs 5,040 crore (as
against Rs 5,361 reflected in the books).
Further, it carries an accrued interest of Rs 376 crore which is non-existent.
An understated liability of Rs 1,230 crore on account of funds arranged by me. An over
stated debtors position of Rs 490 crore (as against Rs 2,651 crore in the books).
For the second quarter ended Sep 30, 2008, the company reported a revenue of Rs 2,700
crore and an operating margin of Rs 649 crore (24% of revenues) as against the actual
revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore (3% of revenues).
This has resulted in artificial cash and bank balances going up by Rs 588 crore in the
second quarter alone.
The letter further states that the gap in the balance sheet has arisen purely on account
of inflated profits over a period of last several years (limited only to Satyam
standalone, books of subsidiaries reflecting true performance). What started as a marginal
gap between actual operating profit and the one reflected in the books of accounts
continued to grow over the years. It has attained unmanageable proportions as the size of
company operations grew significantly (annualised revenue run rate of Rs 11,276 crore in
the September quarter of 2008 and official reserves of Rs 8,392 crore).
As the promoters held a small percentage of equity, the concern was that poor performance
would result in a takeover, thereby exposing the gap. The aborted Maytas acquisition deal
was the last attempt to fill the fictitious assets with real ones.
To quote: “It was like riding a tiger, not knowing how to get off without being eaten.”
A task force comprising imminent members such as Subu D, TR Anand, Keshab Panda and
Virendra Agarwal and AS Murthy, Hari T and Murli V has been formed in the last few days to
address the situation arising out of the failed Maytas acquisition attempt.
Ram Mynampati would be made the Chairman of this task force to immediately address some of
the operational matters on hand. Merrill Lynch would be entrusted with the task of
exploring some merger opportunities.
In the letter, Raju has apologised to all Satyamites and stakeholders for the current
situation.
Raju says that neither he nor the managing director sold any shares in the last eight
years except a small proportion sold for philanthropic purposes.
A net amount of Rs 1,230 crore was arranged to Satyam (not reflected in the books) to keep
operations going by resorting to pledging all the promoter shares and raising funds from
known sources by giving all kinds of assurances. Significant dividend payments,
acquisitions, capital expenditure to provide 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 shares by the lenders on
account of margin triggers.
Raju also acknowledged that neither he nor the managing director took have benefited in
financial terms on account of the inflated results. He confessed that non of the board
members had any knowledge of the situation in which the company is placed
