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In January 2009, Satyam’s Chairman, Ramalinga Raju, resigned after breaking the news to the company’s board that the company accounts had been anything but accurate. In the Forbes article “The Satyam Scandal,” the author writes:
“Raju took responsibility for broad accounting improprieties that overstated the company’s revenues and profits and reported a cash holding of approximately $1.04 billion that simply did not exist.”
The false $1.04 billion in cash equated to 94 per cent of the cash listed on the company’s books. Raju said that no one else on the board was aware of his actions. The Forbes article suggests that these actions are commonly brought about by pressure to meet targets and post good numbers to make shareholders happy. In the case of Satyam, it spun terribly out of control.
1. Investigate All Inaccuracies
The fraud scheme at Satyam started small. Sound familiar? A lot of fraud schemes start out small, with the perpetrator thinking that small changes here and there won’t make a big difference – and are less likely to be detected. This sends a message to a lot of companies: if your accounts aren’t balancing or if something seems inaccurate, even just a tiny bit, it’s worth investigating. Break down tasks so that there are checks in each area. Dividing responsibilities across a team of people makes it easier to detect irregularities or misappropriated funds.
2. Ruined Reputations
Fraud doesn’t just look bad on a company, it looks bad on the whole industry. According to a Reuters article, Accounting Scandal at Satyam Could be India’s Enron:
“India’s biggest corporate scandal in memory threatens future foreign investment flows into Asia’s third-largest economy and casts a cloud over growth in its once-booming outsourcing sector. The news sent Indian equity markets into a tailspin, with Bombay’s main benchmark index tumbling 7.3% and the Indian rupee fell.”
The Satyam scandal subjected even the company’s Indian rivals to greater scrutiny by regulators, investors and the public.
3. Corporate Governance Needs to be Stronger
The Satyam case is just another example supporting the need for stronger corporate governance. Companies must be careful when selecting executives and top level managers. These are the people who set the tone for the company – if there’s corruption at the top, it’s bound to trickle down. Separate the role of CEO and Chairman of the Board. When the same person takes on both roles, who’s left to check up on the CEO? Splitting up the roles helps avoid situations like the one at Satyam.