Satyam Computer Services fraud

Years of steady IT-boom profit. The billion in bank cash was forged, one fake invoice at a time.

The fifth quadrant, where the thing was never real. The tell is that the story is too clean.

Room: Q-F Fraud
Year: 2009
Impact: $1B
Sector: IT outsourcing
Region: Asia-Pacific
Category: Economic

Why this room

The event sits in qf because the reported assets did not exist. Per the SEC's complaint, senior management directed the creation of over 6,000 false invoices, entered them in the general ledger as revenue and receivables, then manufactured bank statements showing those invoices had been paid, producing more than $1 billion of fictitious cash and interest-bearing deposits, roughly half of the company's reported total assets. The tell is the smoothness: reported revenue, income and cash tracked the Indian IT boom without the volatility of a real receivables cycle, and the fabrication was necessary precisely to keep the reported series clean. Classification as fraud rather than accounting error is settled by the founder-chairman's own confession and by the terms on which Satyam settled with the SEC.

The record

As of 30 September 2008 Satyam's balance sheet showed over $1 billion in cash and bank balances when the actual amount was $66 million.certain
Senior managers directed the creation of over 6,000 false invoices, which were entered into Satyam's general ledger; employees then created bogus bank statements showing those invoices had been paid.certain
The fictitious cash and cash-related balances represented approximately half of the company's total assets.certain
The fraud ran from at least 2003 through September 2008, overstating revenue, income, earnings per share, cash and interest-bearing deposits by more than $1 billion.certain
Satyam paid a $10 million penalty to settle the SEC's charges, without admitting or denying the allegations; the NYSE suspended trading in Satyam's American Depository Shares on 7 January 2009, the day of Raju's confession.certain

Sources

The book

This entry is one of 111 in the register. The full story, and what it cost the people who lived it, is in Risky Business by Claudia Zeisberger, David Munro and Joanna Reijgersberg-Siew.

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