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Satyam Fraud

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Satyam Computers Limited-A case of corporate fraud.

Overview:
Satyam Computer Services (an IT company) is considered India’s Enron. The company CEO Mr. Raju was the main person involved. In the end, he admitted to faking company profit for numerous years and was arrested for 1.47 billion dollars in fraud.

Fraudulent acts:
Mr. Raju worked with the internal auditors to come up with ways to create non-existent profits and eliminate debt. For instance, he had fake bank accounts on paper in order to report fake interest income. In addition, internal auditors created fake customer identities to increase company revenue. According to Raju, the fraudulent activities started out only creating a marginal gap between actual and book profit. However, things got out of hand quickly. Cover-ups after cover-ups made the gap wider and wider.

External parties involved:
Satyam’s external auditors, PwC, were also under high scrutiny and criticism after the fall of Satyam. They were Satyam’s auditors for 9 years and signed off on Satyam’s financial statements annually. Under Indian law, if PwC signed off the financial statements, they are responsible for the numbers. Authorities blamed PwC because they failed to notice obvious red flags such as Satyam having a large no-interest bearing account. Reasonable companies would have invested the money in interest bearing accounts or distributed dividends to shareholders.

Red flags raised:
Merrill Lynch was appointed by Satyam to look for a partner for the company. Merrill Lynch found financial irregularities in less than two weeks and terminated its engagement. People were starting to get suspicious of Satyam’s financial stability. The company admitted that it has been going through financial troubles. Raju’s last attempt to mend the giant gap between the company’s book profit and actual profit was through acquiring a…...

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