The story Ramalinga Raju of Satyam Computers has narrated in his letter has too many loose ends and is too incredible to believe. Is his narrative a cover-up? Who is he shielding?
Most of us are too shocked to react in any coherent manner. But, the story given by Ramalinga Raju in his letter to the board of directors of Satyam Computers is absolutely impossible for just he and his brother to carry out. There are far too many loose ends.
As of 30 September 2008, Satyam's stated cash and bank balances were Rs5,361 crore. Of this, Raju's letter says only Rs321 crore is real and Rs5,040 crore is fictitious. Almost the entire amount was reported to be held in deposits with banks. This amount was steadily built up over the last many years. One of the first items auditors check is asset confirmations, and for bank deposits they have to be original certificates from the banks. Given the large amounts involved, it is likely that the entire amount would have been split among many banks. That means the auditors were given forged balance confirmations from multiple banks all these years. There is no way the chairman or managing director of Satyam was directly giving these confirmations to the auditors. At least a few in the finance department of the company clearly knew about this all along.
Raju says in his letter that Rs376 crore of accrued interest is 'non-existent'. This amount was accrued over the last many quarters. For those not familiar with accounting jargon, a company 'accrues' an income when it is due but has not yet been realised in cash. If all the money was parked in bank deposits, which normally pay interest periodically, this means the bank defaulted in interest payments. And Satyam's auditors believed that story!
Satyam had reported Rs2,854 crore as unsecured debtors and Raju's letter says only Rs490 crore is real. Again, for such a large amount, the company would have shown many debtors and confirmations would have been submitted to the auditors for each one of them. Any auditor would go through the ledger account of at least some of the unsecured debtors to see if there are transactions happening. It is difficult to fudge a large number of accounts for a long time as each transaction must have a corresponding entry in the bank account. If the ledger accounts and bank statements were actually fudged, many more people must be involved, including some bankers.
There is only another way this can happen and that is the auditor didn't bother to check anything. That is hard to believe. The statutory audit team for a company the size of Satyam will have at least a dozen or more members, besides the audit firm partner who signs the audit report, and every year the team will change even if the partner remains the same. Assuming that this has been going on for many years, this implies that at least 50 trained employees of the audit firm were duped into believing this fiction. That is beyond incredible.
Satyam had a full-fledged internal audit team, presumably including many accounting professionals. This team must have been going through the books in much more detail than the statutory auditors and submitting regular reports to the audit committee of Satyam's board of directors. The audit committee had only external, so called independent directors and Raju or his brother Ramu were not members. How come not even one of these capable professionals, either in the internal audit team or in the audit committee, didn't detect anything amiss for many years?
These days every business manager analyses threadbare the profitability of each project or contract he or she manages. If Satyam's margins were so low or non-existent, unlike those of its competitors, it would have been apparent in the profitability analysis done by individual profit centres or managers. If it was so low, it would have come up at least in some of the project profitability sheets. If that is the case, why didn't any of the senior managers suspect the healthy margins reported by Satyam, quarter after quarter?
As mentioned earlier, almost the entire cash surplus of over Rs5,000 crore was parked in low-yielding bank deposits. No investments in the stock market or mutual funds or bonds. These days, even companies with Rs100 crore of surplus cash will set up treasury departments to manage the money and seek better returns. Why didn't any director, manager or auditor question this practice?
Raju says he brought in Rs1,230 crore as cash over the last 2 years to 'keep the operations going'. If true, this clearly means the company was facing a severe cash shortage over this period when it was reporting healthy profits. Surprising that none in Satyam's finance department took notice! There is also the small matter of how Raju brought in such a large amount of money, without even a single soul other than his brother knowing it.
This story is too incredible to believe. There are two possibilities:
1. This is a much bigger fraud, involving a large number of people.
2. The profits were not fictitious and the cash was real, at least until a few months back. Somehow the cash disappeared or was lost and this incredible story is a cover up.
Who is he shielding? If local politicians are threatening him, why is he kept in CID custody for this long? Why can't the AP Police allow him to speak to media?
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