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SATYAM SCAM

SATYAM SCAM. MANAGEMENT. FOUNDER : Mr. B Ramalinga Raju CEO : Mr. A. S. Murthy. ABOUT B RAMALINGA RAJU. PERSONAL DETAILS

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SATYAM SCAM

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  1. SATYAM SCAM

  2. MANAGEMENT FOUNDER : Mr. B Ramalinga Raju CEO : Mr. A. S. Murthy

  3. ABOUT B RAMALINGA RAJU PERSONAL DETAILS Ramalinga Raju was born on September 16, 1954 in a family of farmers. He did his B. Com from Andhra Loyola College at Vijayawada and subsequently did his MBA from Ohio University, USA. Ramalinga Raju had a stint at Harvard too. He attended the Owner / President course at Harvard. After returning to India in 1977, Ramalinga Raju moved away from the traditional agriculture business and set up a spinning and weaving mill named Sri Satyam. .

  4. ABOUT B RAMALINGA RAJU He shifted to the real estate business and started a construction company called Satyam Constructions. In 1987, Ramalinga Raju founded Satyam Computer Services along with one of his brothers-in-law, DVS Raju. He started Satyam – ironically the name means “truth” in Sanskrit. He went on to amass a vast personal fortune and a plethora of international business awards The company went public in 1992. With the launch of Satyam Infoway (Sify) Satyam became one of the first to enter Indian internet service market. By year 2008, Satyam has a global presence and serves 44 Fortune 500 and over 390 multinational corporations.PERSONAL NET WORTH IN YEAR 2004 US$495 MILLION

  5. AWARDS CONFERRED TO B RAMALINGA RAJU • Ernst & Young Entrepreneur of the Year Services Award 1999 • Dataquest IT Man of the Year Award 2000 • Asia Business Leader Award 2002 • E&Y Entrepreneur of the Year 2007 (revoked after the scam) • Golden Peacock Award for Corporate Governance 2008

  6. Satyam’s rise and rise :A Summary • 1987 Byrraju Ramalinga Raju founds Satyam Computer Services • 1991 Wins first Fortune 500 customer – John Deere & Co. Lists on the Bombay Stock Exchange, with the IPO hugely oversubscribed • 1999 Satyam Infoway, part of the Satyam group, becomes the first Indian internet company listed on Nasdaq • 2006 Revenue exceeds $1 billion • 2007 Mr Raju named the Ernst & Young Entrepreneur of the Year • 2008 Acquires S&V Management Consultants, a Belgian company, Caterpillar’s market research and customer analytics operations, and Bridge Strategy Group of Chicago

  7. HOW IT’S HAPPENED • A botched acquisition attempt involving Maytas (a company owned by his own family) in December 2008 led to a plunge in the share price of Satyam. • In January 2009, Raju indicated that Satyam's accounts had been falsified over a number of years. He admitted to an accounting fraud to the tune of 7000 crorerupees or 1.5 Billion Dollars and resigned from the Satyam board on January 7, 2009. • Raju had also opened multiple benami (dummy) accounts through relatives and friends and used them to trade in Satyam's shares, violating the insider trading norm.It has now been alleged that these accounts may have been the means of siphoning off the missing funds.

  8. FURTHER MISAPPROPRIATIONS • Inflated figures for cash and bank balances of INR 5,040 cr. (as against INR 5,361 crore reflected in the books). • Operating Profit were artificially boosted from the actual 61 cr. to 649 cr. • Satyam also showed an interest earning of Rs. 376 cr. that was fictitious. Satyam development center

  9. AFTER SHOCKS OF SATYAM FIASCO • Many in the financial circles are dismayed that the biggest-ever corporate fraud in the country could have escaped unnoticed for so many years. • It has brought into question the levels of corporate governance in the country, and has cast an ugly shadow on the once shining image of Indian industry overseas.

  10. AFTER SHOCKS OF SATYAM FIASCO • The scandal will stoke concerns over the state of corporate governance in a country blighted by endemic corruption. Overseas investors have often voiced fears over improper deals by India’s many family-controlled businesses, but it had been hoped that the IT sector was setting a new benchmark in acceptable behaviour. • India’s outsourcers, which specialise in handling sensitive information such as the credit card details of Western consumers, guard their reputations fiercely and executives at Satyam’s rivals were dismayed at the prospect of being tarred by the same brush as Mr Raju. One said: “Sure, there is a chance to pick up some business from clients who jump ship from Satyam, but at what cost long-term?” • Satyam’s clients have included General Electric and the United States Government and in many cases it manages its customers’ accounting systems. • Mr Raju’s disgrace also marked the final downfall of one of India’s most honoured entrepreneurs.

  11. INVESTORS IN BLACK HOLE? Investors stunned • Outside the Bombay Stock Exchange, all anyone can talk about at the chai stalls and sandwich stores is how Ramalinga Raju, the former boss of Satyam Computers, managed to rack up a billion-dollar fraud right under their noses. • Investors in Indian shares were stunned by Mr Raju's revelation, in a letter to the stock exchange this Wednesday, when he confessed his wrongdoing and admitted that he had effectively cooked the books of his firm for the last several years. • The scandal has dominated conversation at the stock market .Satyam's shares plummeted on the news by 75%, dragging down India's stock main market by 7%.

  12. INVESTORS IN BLACK HOLE? Investors concerns • Satyam scam will put the spotlight on Indian companies, and overseas investors will be wary of putting their money here without taking a good, hard look at the company's books. • As if India wasn't going through enough of a bad time and the Satyam scam? How could a fraud of this magnitude take place and go unnoticed? "

  13. B RAMALINGA RAJU’S VERSION • Mr Raju says that he was trying to cover up the losses at Satyam, and in doing so got caught up in a vicious cycle of lies and debts. • An attempt to hide the losses from investors and shareholders was like "riding a tiger, not knowing how to get off without being eaten". • According to Mr Raju's statement, about $1bn (£0.65bn), or 94% of the cash on the company's books, was made up - and analysts say it was the manipulation of the cash flow which could have been one reason why the deceit was undetected. • Many analysts also say that the chase for huge profits, and the desire to keep up with the break-neck speed of India's $50bn outsourcing industry's growth rates that may have been behind Mr Raju's motivation in fudging the accounts at his firm.

  14. RAM MYNAPATI, INTERIM CEO ON JAN 8 2009 Shocked by disclosuresAim to ensure business continues uninterruptedWill work with regulatory bodies closelyReaching out to customersPracticing transparency in everythingOutreach to customers, speaking individually to each onePositively overwhelmed by each employee's passionAscertaining liquidity position and verify Raju's statementsReached out to find new board members Focused to sustain ops and assuring customers to end this quicklyCommitted to strengthening governance

  15. MEDIA REPORTS AND VIEWS AS ON JAN 12 2009 • Indian media is reporting that financial regulators have despatched investigators to Hyderabad to launch a formal investigation into the case. • India's main stock exchanges have announced they are removing Satyam Computers from their indices as of January 12 because of the stunning revelations • Leading members of Indian industry have also expressed their shock and disappointment that such an audacious act of deception could take place.

  16. SATYAM’S TAILSPIN • Under particular scrutiny will be the role of PricewaterhouseCoopers, Satyam’s auditor since 2001, when the group listed on the New York Stock Exchange, which appears to have missed a huge systematic fraud. • Satyam is regarded now as being vulnerable to takeover, but few bankers would venture a valuation yesterday. Banker’s view:A pretax profit of $143 million [£94 million] in the first quarter, but who knows if that is true. No trust when they say they employ 50,000 people.” • Mr Raju has been facing a wave of shareholder hostility since December 16, when he said that Satyam would spend $1.6 billion taking over two struggling property development businesses – Maytas Properties and Maytas Infra – that were owned largely by him and were run by his sons. Maytas is Satyam spelt backwards.

  17. THE NEW BOARD Moving quickly to stabilise the fraud-devastated Satyam Computer, the government on Sunday nominated noted banker Deepak Parekh, IT expert Kiran Karnik and former Sebi member C Achuthan to the infotech company's board.The three-member board would meet within 24 hours to decide on the remaining up to seven members along with the chairman, Corporate Affairs Minister Prem Chand Gupta .. On the demand by institutional investors like LIC and Lazard for a representation on the board. All options are open in the interest of the company.

  18. THE NEW BOARD The board would have eminent personalities from finance, law, IT and administration.More members to the board would be nominated only if needed.. Kiran Karnik, who has been appointed as the one of three members in the newly constituted board of Satyam Computer on Sunday said ensuring business continuity of the IT major will be the board's first priority which is likely to meet within 24 hours.

  19. SATYAM’S TAILSPIN • B Ramalinga Raju was forced to drop the deal hours later after India’s usually sedate institutional investors threatened to derail the acquisition. Most shareholders had assumed that Mr Raju was trying to plunder Satyam’s cash reserves. Maytas purchases were part of a last-ditch plan “to fill [Satyam’s] fictitious assets with real ones”. • A week after the Maytas debacle, the World Bank said that it had blacklisted Satyam, India’s fourth-biggest software services provider, for eight years, alleging that improper benefits had been offered to employees of the bank. Mr Raju insisted that he did not take “even one rupee/dollar from [Satyam] . . . on account of the inflated results”, but sympathy for him is likely to be thin. • Shares in Satyam plunged by nearly 80 per cent yesterday, helping to send Mumbai’s benchmark Sensex index down more than 7 per cent, partly because of fears that other companies may be hiding similar skeletons in their cupboards.

  20. SATYAM’S TAILSPIN • That the Maytas deal had been approved by Satyam’s board will raise further questions about Indian governance. The company’s directors included Vinod Dham, the scientist known as the “father of Pentium” for his role in developing the breakthrough computer chip made by Intel; T. R. Prasad, a former Cabinet Secretary in the Indian Government; and Krishna Palepu, who teaches at Harvard Business School. • Also cast in a dim light by the affair were those who dole out business awards. Late last year, the World Council for Corporate Governance ranked Satyam as among the best-run companies in the world.

  21. CORPORATE GOVERNANCE IMPLEMENTATION IN ACCOUNTING CUD HAVE PREVENTED SATYAM SCAM & HOW a) Book sales belonging to the subsequent year in the current year by pre-dating the invoice. This is like catching the tiger by the tail.  Unless the sales improves, the Company will have to follow the same thing in the subsequent years as well to ensure that the profit trend is maintained. (The auditors can detect this by matching the dates of invoices, shipment advises, gate passes, delivery receipts., physical stock verification reports, debtors confirmation etc.) b) Book bogus sales to inflate profits in one year and show return sales in the subsequent year. This is again like catching the tiger by the tail as the quantum will have to be increased each year to compensate for the additional charge coming in the subsequent year due to return sales.  (The auditors can detect this by checking the invoices, subsequent year sales returns, debtor confirmations, stock tally etc.)

  22. CORPORATE GOVERNANCE IMPLEMENTATION IN ACCOUNTING CUD HAVE PREVENTED SATYAM SCAM & HOW c) Book bogus other income.  This is done to inflate the profits and mostly to as a money laundering exercise: Unaccounted money is laundered into the books by showing income for no actual service rendered.   (Auditors can detect this by seeing the actual documents supporting the other income and by comparing with the expertise available in the company to provide such services)

  23. CORPORATE GOVERNANCE IMPLEMENTATION IN ACCOUNTING CUD HAVE PREVENTED SATYAM SCAM & HOW d) By not booking purchases or overheads.  Companies try to inflate profits by not booking purchase of material or overheads: This again has to be covered up in the subsequent year when the creditors are to be paid.  (Some of the ways in which the Auditor can find these include, comparison of the purchases with physical stock, quantitative tally of stocks and consumption, trend analysis of overheads between two periods, obtaining creditor’s confirmation, bank reconciliation statements to check for amounts paid but not accounted in books which will be hanging as a difference between bank balance as per books and as per the bank statements for a given cut-off date) In all the cases of inflation of sales in the books, the company will credit the sales account to increase the sales and pass the debit to a debtor account to show receivables.  The problem here is that the receivables has to be squared off either by reversing the sale or by writing off as most fraudulent companies do not introduce cash to square of the receivables for bogus sales.

  24. CURRENT STATUS ON SATYAM • Satyam computers has been taken over by Tech Mahindra the software arm of the reputed Mahindra and Mahindra after winning over the bid for take over. • Now Satyam computers is known as Mahindra Satyam or M-Sat. Mahindra Satyam is part of the $6.3 billion Mahindra Group, a global industrial conglomerate and one of the top 10 industrial firms based in India. The Group’s interests span financial services, automotive products, trade, retail and logistics, information technology and infrastructure development. • It is a leading global business and information technology services company that leverages deep industry and functional expertise, leading technology practices, and an advanced, global delivery model to help clients transform their highest-value business processes and improve their business performance.

  25. CURRENT STATUS ON SATYAM • The company's professionals excel in enterprise solutions, supply chain management, client relationship management, business intelligence, business process quality, engineering and product lifecycle management, and infrastructure services, among other key capabilities. • Mahindra Satyam development and delivery centers in the US, Canada, Brazil, the UK, Hungary, Egypt, UAE, India, China, Malaysia, Singapore, and Australia serve numerous clients, including many Fortune 500 organizations.

  26. CURRENT STATUS ON SATYAM • Mahindra Satyam, the brand identity of Satyam Computer Services Ltd. (NYSE:SAY), a leading global consulting and IT services provider, today announced key decisions pertaining to its Board. Mr Vineet Nayyar has been appointed as the Chairman of its Board and Mr. M. Damodaran and Mr. Gautam S Kaji have been appointed as additional directors, with immediate effect. • .

  27. CURRENT STATUS ON SATYAM • Consequently the size of the Board has increased to 8 directors comprising of 4 independent directors (including two nominee directors of the Central government), 2 non-executive and 2 whole time directors. Mr Nayyar will also continue to operate as a whole-time director. • In a career spanning over 40 years, Mr. Nayyar has worked with the Government of India, international multilateral agencies and in the corporate sector (both public and private)

  28. CURRENT STATUS ON SATYAM • Mr.Nayyar started his career with the Indian Administrative Service and held a series of senior positions, after which he worked with the World Bank for over 10 years in a series of senior assignments. He was the founding Chairman and Managing Director of the state owned Gas Authority of India and has served as Managing Director of HCL Corporation Ltd and as the Vice Chairman of HCL Technologies Ltd. He was also a co-founder and Chief Executive Officer of HCL Perot Systems. • Mr Damodaran IAS (Retired) is currently practicing as an independent consultant in diverse areas of management. He has over 30 years of experience in financial services and public sector enterprises and has served as the former Chairman of the Securities and Exchange Board of India (SEBI), Chairman and Managing Director of Industrial Development Bank of India (IDBI) and as Chairman of the Unit Trust of India (UTI). He has also held various positions in the Ministry of Finance, the Ministry of Information & Broadcasting and the Ministry of Commerce.

  29. CURRENT STATUS ON SATYAM • Mr. Gautam S Kaji is the former Managing Director for operations of the World Bank with responsibility for Africa, East Asia and the Pacific and South Asia. He also led the World Bank's finance and private sector development programs and served as chair of the World Bank's operations committee, which reviews all projects put forward for World Bank support. Prior to this he worked in a commercial bank. He is currently Chairman of Centennial Group a Washington based Policy and Strategic advisory firm and their non-profit initiative The Emerging Markets Forum.

  30. CURRENT STATUS ON SATYAM • Following these appointments, the Board has also appointed Mr. Damodaran and Mr. Gautam S Kaji as members of the Audit Committee. • Further the Board has also appointed Deloitte Haskins & Sells as Mahindra Satyam’s statutory audito

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