27503749 satyam-case
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The document discusses the Satyam financial fraud case in India. It provides background on the increasing number of financial statement frauds globally and their large costs. It describes how Satyam's chairman confessed to a $1 billion fraud by inflating revenues, profits and cash balances. This led to investigations, management changes, and a bidding process to select a new strategic investor. The document examines the modus operandi of the fraud and lessons for stronger corporate governance, auditing, transparency and ethical values.
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27503749 satyam-case
- 1. FINANCIAL油STATEMENT油FRAUD油 &油CORPORATE油GOVERNANCE d e THE油SATYAM油CASE tm as E _ al By e R T.N.Manoharan Deans Distinguished Visitor, USQ
- 2. CHALLENGING油TIMES Number油of油financial油statement油frauds油on油increase d e Frauds油against油organizations油are油increasing tm Some油recent油frauds油involve油multiple油individuals油 as colluding油to油defraud油 E _ Many油investors油have油lost油confidence油 More油interest油in油fraud油than油ever油before油now油a油 course油on油many油university油campuses Forensic油accounting油and油auditing/油IT油Systems油Audit油 al e Security/Controls/risks油assessment R
- 3. Fraud油is油a油Costly油Proposition d e Fraud油Losses油Reduce油 Fraud油Robs油Income tm Net油Income油$油for油$ as If油Profit油Margin油is油10%,油 E Revenues $100 100% Expenses 90 90% _ Revenues油Must油 Net Income $ 10 10% Increase油by油10油times油 Fraud 1 Losses油to油Recover油Effect油 Remaining $ 9 on油Net油Income To restore income to $10, need al Losses.油$1油Million $10 more dollars of revenue to e generate $1 more dollar of R Revenue.$1油Billion油 income.
- 4. Impact油of油Fraud油Two油Examples油 d e General油Motors Bank tm $100油Million油Fraud as $436油Million油Fraud E Profit油Margin油=油10% Profit油Margin油=油10油% _ $4.36油Billion油in油Revenues油 $1油Billion油in油Revenues油 Needed Needed At油$20,000油per油Car,油 At油$100油per油year油per油 218,000油Cars Checking油Account,油油油油10油 al Million油New油Accounts油油油油油油油油油油油 e R
- 5. Fraud油leads油to油Stock油value油crash d e Financial油statement油fraud油causes油a油decrease油in油 tm market油value油of油stock油of油approximately油300油to油 as E 1,000油times油the油amount油of油the油fraud. _ $2油billion油drop油in油 $7油million油fraud stock油value al e R
- 6. Types油of油Fraud d Fraudulent油Financial油 e The common element tm Statements is deceit or trickery! as Employee油Fraud E _ Vendor油Fraud Customer油Fraud Investment油Scams al Bankruptcy油Frauds e R Miscellaneous油
- 7. Financial油Statement油Frauds d e tm Satyam First in India as E _ Madoff Many油others油 (Cendant,油 al Lincoln油Savings,油ESM,油Anicom,油 e Waste油Management,油 R Sunbeam,油etc.)
- 8. Satyam油Case Basic油Facts Fourth油largest油Indian油IT油Company油listed油in油India油&油US油 d e Over油US油$油2油billion油annual油revenue油size油Co油 tm Established油in油mid油1980s,油grown油to油53,000油employees;油 as E 600油plus油customers油including油185油fortune油500油Cos _ Operations油in油66油countries油across油the油globe Financial油advisor:油Merrill油Lynch油(now油Bank油of油America) Auditors:油Price油Water油House油Coopers al Bankers:油Citi油bank;油BNP油Paribas,油HSBC油&油HDFC e R
- 9. Confession油 January油7th ,油2009 d e tm as E _ al e R
- 10. Chairman油Rajus油Version d Inflated油油billing油to油customers油油油 e tm Nonexistent油cash油&油bank油balances油$油I油bn as Overstated油Debtors油$油100油million油 E _ Operating油margin油shown油high油at油24%油in油Q2油(Sept油2008)油 as油against油3%油real油profit油margin Such油manipulation油done油in油earlier油years(油6油yrs$油1.2油 Bn) al Increased油costs油to油justify油higher油level油of油operations e R Attempt油to油merge油Sons油Company油Maytas with油huge油 land油Bank油to油bridge油the油gap油failed
- 11. Why油Confession油? d Recession油drained油the油liquidity油to油run油the油show e tm Out油standings油were油piling油up as Since油listed油in油US,油SEC油rigors油would油take油over E _ Unmanageable油gap油between油actual油and油book油profit油 Every油attempt油made油to油eliminate油the油gap油failed.油As油the油 promoters油held油a油small油percentage油of油equity,油the油concern油 was油that油poor油performance油would油result油in油a油takeover,油 al thereby油exposing油the油gap.油It油was油like油riding油a油tiger,油not油 e R knowing油how油to油get油off油without油being油eaten.
- 12. Consequences油of油confession Investors Panicked油as油Stock油plummeted油& d e Class油action油suits油filed油in油US tm as Employees stranded油in油many油ways morally,油financially,油 E legally油and油socially _ Customers shocked油and油worried油about油the油project油 continuity,油confidentiality油and油cost油over油run Bankers油 concerned油about油recovery油of油financial油and油non financial油exposure油and油recalled油facilities al e Government worried油about油image油of油the油Nation油&油IT油 R Sector油affecting油faith油to油invest油or油to油do油business
- 13. Action油after油Confession d Chairman,油MD油and油CEO,油CFO,油Chief油accountant油and油two油 e tm of油his油associates油arrested as Two油Partners油of油PW油(Audit油Firm)油were油also油arrested油 E Options油before油Government:油i.油Allow油market油forces油to油 _ decide;油ii.油Announce油bail油out油plan;油iii.油Think油out油of油the油box Government油dissolved油existing油Board油& nominated油6油of油us油 al Gave油us油complete油freedom e R
- 14. Prioritized油Plan油of油Action d Restore油cash油flow油to油secure油Financial油Stability e tm Customer油retention油and油infuse油confidence油to油continue as Employee油motivation油and油Management油restructure E _ Legal油advisors In油India油and油USA油appointed Internal油audit油entrusted油to油an油external油firm Management油Consultants油and油Board油Advisors油appointed al Forensic油investigation油to油facilitate油restatement油of油 e accounts油initiated R
- 15. SWOT油Analysis d WEAKNESS e tm World class infrastructure Tainted image Leadership and talent pool Class action suits as Premium Customers Silos in management structure E Low debts Third party claims _ OPPORTUNITIES Investigating agencies Pledge assets to raise funds from Media Banks Revenue Department Persuade clients to pay up New tendering-BGs, Solvency Create charge on receivables to al certificate, Audited statements continue existing debts e R For油about油15油weeks油there油was油no油owner油in油control
- 16. Modus油Operandi Held油weekly油Board油meetingsTN油was油 d e stationed油at油Satyam油round油the油clock tm Raised油$135油million油from油2油banks油to油 as E supplement油internal油accruals _ Cleared油all油statutory油dues;油Paid油global油salary油including油 insurance油and油taxes;油Released油payments油to油other油dues油 Kept油meeting,油talking油to油and油reaching油out油to油employees油 and油customers al e Video油clippings;油teleconference油calls;油personal油meetings;油 R ENews油letter油&油Weekly油Bulletin油
- 17. Two油critical油options d Continue油to油run油the油Business,油clean油up油and油restate油the油 e tm accounts,油reaudit,油enable油valuation,油duediligence油and油 as offer油for油take油over;油or E Immediately油identify油a油strategic油investor油who油will油infuse油 _ capital油and油take油over油control油&油management Chose油the油second油option油after油due油deliberation Investment油Bankers油appointed,油Bidding油process油set油in油 al motion油with油Former油Chief油Justice油of油India油as油Observer油 e R SEBI油and油CLB油were油moved油for油appropriate油relaxations
- 18. Bidding油Process Press油release油on油9th油March油inviting油registration d e tm RFP油was油sent油to油141油registered only油10油submitted油EOI as Out油油of油10,油7油met油the油criteria油and油were油sent油documents油 E for油execution _ 5油submitted油油documents油but油later油2油withdrew油for油want油 of油internal油approvals油leaving油3油in油race Thus,油WL油Ross;油L&T油and油Tech油Mahindra油competed al Information油had油to油be油given油to油Bidders油to油facilitate油油 e quoting油price油per油share油for油preferential油allotment油 R
- 19. Strategic油Investor油Selection Virtual油and油Physical油data油room油created d e &油access油provided tm as Site油inspection油of油2油main油campuses油arranged E Management油presentation油made油for油each油bidder油 _ exclusively油show油casing油the油facts油and油potentials;油 Conference油call油slots油were油given油to油clarify油on油legal油 matters油and油again油on油financials油separately al One油meeting油between油each油of油the油bidders油and油the油 e Government油nominated油board油on油3rd油April油 R Technical油and油Financial油bids油received油on油13th油April油and油 highest油bidder油Tech油Mahindra油selected
- 20. Prime油Ministers油Appreciation d e tm as E _ al e R
- 21. Factors油that油contribute油to油Fraud d GreedEthical油values油given油a油go油by e tm Executive油incentives as Stock油market油expectations E _ Nature油of油accounting油rules Audit油failures Internal油&油External Aggressiveness油of油investment油banks,油commercial油banks,油 Rating油agencies油&油investors al e Weak油Independent油directors油and油Audit油committee油 R Whistle油blower油policy油not油being油effective
- 22. How油did油Satyam油scam油happen? d Ambitious油growth油drive e tm Audit油failure example.,油External油confirmations油of油Bank油 as balances油not油properly油done E Deceptive油reporting油practiceslack油of油transparency油 _ ESOPs油issued油to油those油who油prepared油fake油bills Excessive油interest油in油maintaining油stock油prices High油risk油deals油that油went油sour al e Above油all,油greed油and油lack油of油ethical油values. R
- 23. R e al _ E as ROAD油AHEAD tm e d
- 24. Corporate油Lessons油to油be油learnt d Rotation油of油audit油firm油vs油rotation油of油audit油partner e tm Strengthening油of油Quality油review油(Peer油review)油 as Joint油Auditors油to油audit油companies油beyond油a油size E _ Internal油audit油of油Financials油by油an油external油firm油 with油undiminished油scope Composition油of油Board油and油quality油&油qualification油 al of油Independent油Directors e R
- 25. Corporate油Lessons油to油be油 d e Audit油Committee油meetingsadequacy油of油 tm notice油and油adequacy油of油duration油 as E Criteria油for油remuneration油to油Key油Personnel _ Effective油whistle油blower油policy in油place Focus油on油Intangibles &油Tangibles follow油油 al Education油on油Ethical油values油 e R
- 26. Moral油Lessons油for油recapitulation d Humility油helps油while油Ego油hurts e tm Think油of油a油Rainy油day,油always as E Distinguish油between油opportunities and油temptations _ Build油quality油teams油and油enable油succession Adapt油with油technology/knowledge油changes油but油 al stay油static油on油fundamentals e R Listen油to油your油head油in油complying油with油law油and油to油 your油heart油in油dealing油with油people
- 27. Moral油Lessons油for油油 d e Many油good油things油done油get油washed油away油in油one油 tm bad油conduct as E To油live油beyond油your油age油 Love油people油and油use油 wealth _ Ability油may油take油you油to油the油top but油it油takes油Character油to油stay油there al e Nothing油is油impossible,油if油attempted油with油nobility R
- 28. R e al _ E as tm e d