Business Management Case Study: Satyam Computer Services Limited

In 1987,formed in Hyderabad in India by Mr.Ramalinga Raju , Satyam Computer Services Limited Satyam Computer Services Limited emerged as a “rising-star” in the Indian “outsourced” IT-services industry. The firm that began with only 20 employees , grew rapidly as a “global” business. It offered IT and business process outsourcing services spanning various sectors. Satyam was as an example of “India’s growing success”. Satyam won numerous awards for innovation, governance, and corporate accountability. In 2007, Ernst & Young awarded Mr. Raju with the ‘Entrepreneur of the Year’ award. On April 14, 2008, Satyam won awards from MZ Consult’s for being a ‘leader in India in CG and accountability’. In September 2008, the World Council for Corporate

Raju,on January 7, 2009 disclosed in a letter to Satyam Computers Limited Board of Directors that he had been manipulating the company’s accounting numbers for years. He claimed that he overstated assets on Satyam’s balance sheet by $1.47 billion. Nearly $1.04 billion in bank loans and cash that the company claimed to own was non-existent. Satyam also underreported liabilities on its balance sheet and overstated income nearly every quarter over the course of several years in order to meet analyst expectations. Mr. Raju and the company’s global head of internal audit used a number of different techniques to perpetrate the fraud. “Using his personal computer, Mr. Raju created numerous bank statements to advance the fraud. He falsified the bank accounts to inflate the balance sheet with balances that did not exist. He inflated the income statement by claiming interest income from the fake bank accounts. Mr. Raju also revealed that he created 6000 fake salary accounts over the past few years and appropriated the money after the company deposited it. The company’s global head of internal audit created fake customer identities and generated fake invoices against their names to inflate revenue. Satyam planned to acquire a 51% stake in Maytas In- frastructure Limited, a leading infrastructure development, construction and project management company, for $300 million. Here, the Rajus’s had a 37% stake. The total turnover was $350 million and a net profit of $20 million. Raju’s also had a 35% share in Maytas Proper- ties, another real-estate investment firm. Satyam revenues exceeded $1 billion in 2006. In April, 2008 Satyam became the first Indian company to publish IFRS audited financials. On December 16, 2008, the Satyam board, including its five independent directors had approved the founder’s proposal to buy the stake in Maytas Infrastruc- ture and all of Maytas Properties, which were owned by family members of Satyam’s Chairman, Ramalinga Raju, as fully owned