Riding a Tiger and Not Knowing How to Get Off

Lessons Learned from the Satyam Fraud

By Marjorie Maguire-Krupp, CPA, CIA, CFSA;George W. Krull Jr., Ph.D., CPA;Sridhar Ramamoorti, Ph.D., CFE, ACA, CPA/CITP, CFFA, CFSA, CGAP, CGFM

marjorie-maguire-80x80   george-krull-cp-80x80.jpg  sri-ramamoorti-80x80   Case in Point

Enron and WorldCom sounded the wake-up call for a renewed focus on corporate governance, but the U.S. certainly does not have a monopoly on huge frauds. In early January 2009, B. Ramalinga Raju, the founder and chairman of Satyam Computer Systems, one of the largest IT outsourcing companies in India, made a startling public confession: For years, he had engaged in a massive fraud — the largest ever in India's history.

Raju's disturbing confession letter, which he delivered to Satyam's board of directors "with deep regret and tremendous burden," revealed that "The Balance Sheet carries as of September 30, 2008 inflated [non-existent] cash and bank balances of rupees 5,040 crore [more than U.S. $1 billion]." Grossly inflated revenues included fictitious accounts and amounts. The materially misstated balance sheet contained these inflated, imaginary profits throughout several years.

Investigators eventually found willing suppression of accounting irregularities. Authorities arrested numerous executives, including Raju and two of his brothers, who are in prison. Others have been released.
In this column, we explore why internal and external auditors did not spot this massive fraud and what could have deterred it. We hope the lessons will improve your understanding of global fraud and help you in your anti-fraud fight. 


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