After spending five years investigating the stock market aspect of the Satyam accounting fraud committed in 2009, it was revealed to be the largest accounting fraud in the country. This case brought recognition to forensic accounting as a profession.
The investigation shed light on the importance of forensic accountants and their role in uncovering fraudulent activities.
Satyam Investigation and Mayur Joshi
Our co-founder, CA Mayur Joshi, played an integral role in the investigation of Satyam’s accounting fraud. As a forensic accounting evangelist, he brought his expertise and knowledge to the table to help law enforcement. It also helped uncover the fraudulent activities that were being carried out by Satyam’s management.
Further, his involvement in the investigation ensured that the fraudulent activities were thoroughly examined and brought to light. His dedication and commitment to uncovering the truth were instrumental in bringing justice to the stakeholders who were affected by the fraud.
The Securities Exchange Board of India (SEBI) played a critical role in the Satyam scam investigation. SEBI launched a probe into Satyam Computer Services following a confession by the company’s Chairman, Ramalinga Raju, that he had falsified the company’s accounts and inflated its profits.
After conducting a thorough investigation, SEBI concluded that Satyam had engaged in fraudulent activities such as inflating revenues, understating liabilities, and manipulating profits. To uncover the extent of the financial fraud, SEBI ordered a forensic audit of Satyam’s books. As a result of the investigation, SEBI imposed significant fines on Satyam’s management and banned them from participating in capital markets for a specified period.
Many people consider SEBI’s investigation into the Satyam scam to be one of the most significant and successful regulatory interventions in India’s corporate history.
Summary of SEBI Report
SEBI investigated the Satyam fraud after it was exposed in 2009. They subsequently made a 65-page report public.
|Falsification of Accounts||Satyam’s Chairman, Ramalinga Raju, confessed to falsifying the company’s accounts and inflating its profits over a period of several years. SEBI found that Satyam had overstated its cash balance, understated its liabilities, and inflated its profits by more than $1 billion.|
|Failure of Auditors||SEBI found that Satyam’s auditors had failed to detect the fraud despite conducting multiple audits of the company’s accounts. Satyam’s auditors were found to have colluded with the company’s management to perpetrate the fraud.|
|Failure of the Board of Directors||SEBI found that Satyam’s board of directors had failed in its duty to oversee the company’s affairs and ensure that proper governance practices were in place. The investigators also found that the board had been negligent in its oversight of Satyam’s financial reporting and had failed to detect the fraud.|
|Insider Trading||SEBI found evidence of insider trading in Satyam’s stock by certain members of the company’s management and board of directors. The investigation found that these individuals had sold their shares in the company prior to the disclosure of the fraud, thus avoiding significant losses.|
|Regulatory Failure||SEBI’s investigation also highlighted the regulatory failure of the government and the Ministry of Corporate Affairs in overseeing the functioning of Satyam and ensuring that proper governance practices were in place. The investigation resulted in significant reforms to the way India audits and governs companies.|
A full copy of this report is available here. SEBI’s report confirms some previously known information but also debunks other claims. Specifically, the report shows that Ramalinga Raju had a team working for him. They created fake orders, invoices, receivables, monthly bank statements, and fixed deposit receipts in order to manipulate the company’s financials. However, the report also reveals that the money perceived to have been swindled is not actually Rs 5,600 crore but much more.
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 the internal audit, were in possession of ‘unpublished price sensitive information’ and not only that they also profited from the sale of shares of Satyam Computer in the open market that was in violation of the SEBI Act of 2003.