AMITY UNIVERSITY

MBA SECOND SEMESTER ASSIGNMENT 2014 – 16
Minor Project
Financial Fraud –Sathyam computers

SUBMITTED BY:
Abhijith Rajan
AUD 2351
MBA (GENERAL)

ABSTRACT
From Satyam, we can see that corporate book keeping misrepresentation is a noteworthy issue that is raising both in its recurrence and seriousness. Exploration confirmation has demonstrated that these developing number of fakes have made undermined the trustworthiness of monetary reports, added to generous financial misfortunes, and disintegrated speculators' certainty with respect to the handiness and dependability of money related articulations. The expanding rate of these sort of law violations need to get hardened punishments, excellent disciplines, and powerful requirement of law with the right soul. An endeavor is made to inspect and investigate inside and out the Satyam Computer's "inventive bookkeeping" embarrassment, which conveyed to spotlight the significance of "morals and corporate administration" (CG). The extortion submitted by the authors of Satyam in 2009, is a demonstration of the way that "the art of behavior is influenced in huge by human eagerness, aspiration, and crave influence, cash, acclaim and wonderfulness". Dissimilar to Enron, which sank because of "organization" issue, Satyam was conveyed to its knee because of "burrowing" impact. The Satyam embarrassment highlights the significance of securities laws and CG in "developing" markets. Without a doubt, Satyam misrepresentation "prodded the administration of India to fix the CG standards to anticipate repeat of comparative cheats in future". Therefore, major monetary reporting fakes need to be considered for "lessons-educated" and "methodologies to-take after" to lessen the occurrences of such cheats later on.

Table of content

1.Introduction
2. Impact of Fraud in an Organization
3. Literature Review
4. Research Methodology
5. The Scandal at Satyam Computer
6. The start of Satyam Computer ltd.
7. Outcome of Satyam Scandal
8. Data Analysis
9. Conclusions

Introduction
What Is Fraud?
Fraud is a deceptive activity bringing on genuine or potential monetary misfortune to any individual or element including burglary of cash or other property by workers or persons outer to the University and where duplicity is utilized at the time, instantly before or promptly taking after the action. This likewise incorporates the intentional distortion, camouflage, obliteration or utilization of misrepresented documentation utilized or proposed for utilization for an ordinary business reason or the ill-advised utilization of data or position for individual monetary advantage.
The idea of misrepresentation includes false or degenerate lead by inner gatherings or outer substances focusing on the University, or deceitful or degenerate direct by the University itself focusing on outside elements.

Impact of Fraud in an Organization:
In the course of recent decades, real open organizations have encountered budgetary misrepresentation, bringing about uncertainty in markets also loss in shareholder quality, &, sometimes insolvency of organization itself. In spite of the fact that, it is by and large acknowledged that the “Sarbanes-Oxley Act” has enhanced corporate administration & diminished the frequency of extortion, late studies and reviews demonstrate that financial specialists & administration keep on having worries about monetary explanation misrepresentation.
Literature Review
Beginning in the 1990’s, a flood of corporate fakes in the Us happened in Enron. “Approximately 63 percent of the 910 fraud cases are classified under the internal control risks”. In addition, Smith offered a “typology” of individuals who embezzle. He indicated that embezzlers are “opportunist’s type”, who rapidly identifies the absence of shortcoming in inside control and grabs the chance to utilize the insufficiency to his advantage. Essentially, Ziegenfuss performed a study to focus the sum and sort of misrepresentation happening in "state and neighborhood" governments. His study has uncovered that the frequently event sorts coercion are misappropriation of advantages, thievery, false representation and false receipt. On the other hand, Haugen and Selin in their study examined the estimation of "inward" controls, which depends generally on administration's honesty and the prepared accessibility of PC innovation, which helped with the dedication of wrongdoing. Sharma and Brahma underlined on "financiers" obligation on fakes; bank cheats could manifest in all circles of bank's managing. Significant foundation for execution of extortion is laxity in recognition in set down framework and strategies by regulating staff. Harris and William, then again, inspected the explanations behind "advance" fakes in banks and accentuated on due tirelessness program. Beirstaker, Brody, Pacini in their study proposed various extortion insurance and recognition strategies. Additionally, Willison inspected the reasons that prompted the breakdown of "Notwithstanding" Bank. The breakdown came about because of the disappointments in administration, monetary and operational controls of Baring Banks.Choo and Tan clarified corporate misrepresentation by relating the "extortion triangle" to the "broken trust hypothesis" and to an "American Dream" hypothesis, which starts from the sociological writing, while Schrand and Zechman relate official arrogance to the dedication of extortion. In addition, Bhasin analyzed the explanations behind "check" fakes, the greatness of cheats in Indian banks, and the way, in which the mastery of inward examiners can be coordinated, with a specific end goal to recognize and anticipate cheats in banks by taking "proactive" strides to battle cheats. Chen in his study analyzed "deceptive" initiative in the organizations and thinks about the part of exploitative pioneers in an assortment of situations. Through the utilization of PC recreation models, he indicates how a blend of CEO's narcissism, monetary motivating force, shareholders' desires and subordinate hush and CEO's deceptive nature can do much to clarify a portion of the discoveries highlighted in late prominent money related bookkeeping outrages. As indicated by an examination study performed by Cecchini et al.the creators gave a technique to distinguishing "administration" extortion utilizing fundamental money related information in light of "bolster vector machines".From the above, it is obvious that dominant part of studies were performed in created, Western nations. Be that as it may, the chief's conduct in extortion responsibility has been generally unexplored in this way. Likewise, the goal of this paper is to inspect chiefs' dishonest practices in Sathyam Computer Ltd, which constitute an ex-post assessment of claimed or recognized misrepresentation case. Tragically, “no study has been directed to inspect behavioral parts of administrator's in the propagation of corporate fakes in the connection of a creating economy, similar to India. Thus, the present study tries to fill this hole and adds to the writing”.

Research Methodology: Monetary recording practice can be created by situation to a specific setting in which it is implanted. Consequently, subjective examination can be valuable to investigate & depict false money related reporting practice. Here, two issues are significant. To start with, to comprehend why and how a particular organization is focused on false money related reporting practice a fitting interpretive examination methodology is required. Second, contextual investigation directed as a major aspect of this study, took a gander at the biggest misrepresentation, including Sathyam Computer Service’s (Sathyam). Named as “India's Enron by the Indian media, the Satyam bookkeeping misrepresentation has extensively uncovered the disappointment of the administrative oversight component in India”. Doubtlessly, to plan better bookkeeping frameworks, we have to see how bookkeeping frameworks work in their social, political and financial settings. The principle targets of this study are to: * Bring out the Sathyam Computers Ltd bookkeeping outrage by depicting the succession of occasions, the result of occasions, the key gatherings included, and major subsequent activities embraced in India

* What we can be get from Satyam manupulation?

The Scandal at Satyam Computer
Sathyam Computers was awarded the “Golden Peacock Award” being the best administrated establishment in both 2007 & 2009. During these times Sathyam computers was known as the “crown jewel” and the country’s “fourth largest” company with hig-profile customers. The chairman and founder of Sathyam computers was arrested has confessed to Rs. 7800 crore fraud, and also said that he had been making benefits for a considerable length of time. “The instance of Satyam's bookkeeping extortion has been named as India's Enron". So as to assess and comprehend the seriousness of Satyam's extortion, it is imperative to comprehend variables that added to the "exploitative" choices made by the organization's officials. First and foremost, it is important to detail the ascent of Satyam as a contender inside of the worldwide IT administrations commercial center. Second, it is useful to assess the main thrusts behind Satyam's choices: Ramalinga Raju. At long last, endeavor to realize a few "lessons" from Satyam fraud for what's to come.

The start of Sathyam Computers ltd.
Sathyam Computer Ltd was a “rising-star” in the Indian “outsourced” IT-services industry. The company began with 20 employees in 1987 in Hyderabad by Mr.Ramalinga. Satyam won various recompenses for advancement, administration, and corporate responsibility. “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”. “The markets major drivers at that point in time were the increased importance of IT services to businesses worldwide; the impact of the Internet on eBusiness; the emergence of a high‐quality IT services industry in India and their methodologies; and, the growing need of IT services providers who could provide a range of services”. From 2003 to 2008, in about every single monetary metric of enthusiasm to financial specialists, the organization became quantifiably. “Satyam produced USD $467 million altogether deals, By March 2008, the organization had developed to USD $2.1 billion” & The organization illustrated "a yearly compound development rate of 35% over that period". “The instance of Satyam bookkeeping misrepresentation has been named as India’s Enron”.

Outcome of Satyam Scandal
After the news of the coercionand Credit Suisse temperorly stoped its extent of Satyam, and PricewaterhouseCoopers (PwC) went under remarkable examination and its allow to work was repudiated. Craved awards won by Satyam and its official organization were stripped from the association. “Satyam's shares tumbled to 11.50 rupees on January 10, 2009, their most insignificant level since March 1998, diverged from a high of 544 rupees in 2008. In the New York Stock Exchange, Sathyam shares peaked in 2008 at US $ 29.10; by March 2009 they were trading around US $1.80”. Subsequently, budgetary authorities lost $2.82 billion in Satyam. Appallingly, Sathyam in a general sense extended its pay and assets for an extensive period of time and moving down Indian stock trades and hurling the business into turmoil. Mr. Raju was soon arrested with criminal charges, including: criminal plan and impersonation. After the Satyam calamity and the imagined by PwC, money related pros got the opportunity to be cautious about those associations who are clients of PwC, which realized fall in offer expenses of around 100 associations moving between 5% - 15%. Raju's leak about book-keeping blackmail, "new board people were assigned and they started working towards an answer that would keep the total breakdown of the firm”. The Government "rapidly started an examination, while meanwhile confining its prompt participation, with Satyam in light of the way that it might not want to appear like it was responsible for the coercion, or attempting to disguise the distortion". The assembly chose "another" directorate for Sathyam to endeavor to extra the association. The Board's goal was "to offer the association within 100 days". To devise a plan of offer, the board met with speculators, accountants, legitimate advocates, and government powers in a flash. It worked innovatively to take quality and conviction back to the association to ensure the offer of the association within the 100-day time compass. To accomplish the arrangement, the heap up enrolled Goldman Sachs and Avendus Capital and blamed them for offering the association in the most constrained time possible.By mid-March, a couple of important players in the IT field had adequately expanded trust in Satyam's operations to take an enthusiasm for a wheeling and dealing technique for Satyam. “The Securities and Exchange Board of India (SEBI) named a surrendered Supreme Court Justice, Justice Bharucha, to direct the method and instill confide in the trade”. A couple of associations offer on Sathyam on April 13, 2009. The triumphant buyer, Tech Mahindra, obtained Sathyam for $1.13 per offer not as much as 33% of its securities trade regard before Mr. Raju revealed the blackmail and saved its operations. Both Tech Mahindra and the SEBI are right away totally aware of the full level of the coercion and India won't look for after further examinations

Data Analysis
The stathyam scam made an impact not only in the indian economy but the whole world economy. This scam started small thinking little changes here and there wont make much dfifference but eventualy it turned out to be one of the most biggest scam India has ever seen. soon Sathyam computers was known as the “India’s Enron”.
Table 1 delineates a few sections of manufactured “Asset report and Income Statement” and demonstrates "distinction" in the middle of "genuine" and "reported" investments. Luckily, the Sathyam manage Matyas was "salvageable". It could have been spared just “if the arrangement had been permitted to experience, as Satyam would have possessed the capacity to utilize Maytas' advantages for shore up its own books". Raju, who demonstrated "counterfeit" money on his books, had wanted to utilize this "non-existent" money to get the two Maytas organizations. As a feature of their "burrowing" method, the Sathyam organizers had generously diminished their possessions in organization from 25.6% in March 2001 to 8.74% in March 2008. Besides, as the organizers seized a little rate of value (unimportant 2.18%) on December 2008,

We can see a takeover offer from table II, in this manner uncovering the hole. It was similar to "riding a tiger, not knowing how to get off without being eaten". “The prematurely ended Maytas obtaining arrangement was the last, frantic push to conceal the bookkeeping misrepresentation by bringing some genuine resources into the business”. The organization with a colossal money heap, with promoters as yet controlling it with a little every penny of shares (under 3%), and attempting to retain a land organization in which they have a dominant part stake is a lethal mix guiding by all appearances toward burrowing . The motivation behind why Ramalinga Raju claims that he did it was on account of each year he was fudging income figures and since consumption figures couldn't be fudged so effortlessly, the crevice between "genuine" benefit and "book" benefit got broadened consistently. Along these lines, "invented" benefits could be consumed through a "self-managing" procedure. The evaluators, financiers, and SEBI, the business guard dog, were all reprimanded for their part in the bookkeeping extortion.
2. Promoter’s shareholding pattern 2001 to 2008.

“Stock Charting of Satyam from December 2008 to January 2009”.

Conclusions
The rate of certified criminal acts, lacking indecision, desires solid punishments and self-restraints. Maybe, no monetary misrepresentation had a more noteworthy effect on accountin and reviewing calling than Enron, WorldCom, and as of late, India's Enron: "Satyam". Every one of these fakes have provoked the entry of the “Sarbanes-Oxley Act in July 2002, and another government office and monetary standard-setting body, the Public Companies Accounting Oversight Board (PCAOB). It additionally was the force for the American Institute of Certified Public Accountants' (AICPA) reception of SAS No. 99”, "Thought of Fraud in a Financial Statement Audit". All sort of outrages/fakes have demonstrated that there is a requirement for good direct taking into account solid morals. The Indian government, in Satyam case, took brisk activities to secure the enthusiasm of the speculators, defend the believability of India, and the country's picture over the world. Besides, Satyam misrepresentation has constrained the administration to re-compose CG runs and fixed the standards for examiners and bookkeepers. The Indian partner of PwC "routinely neglected to take after the most essential review techniques. The SEC and the PCAOB fined the associate, PwC India, $7.5 million which was portrayed as the biggest American punishment ever against an outside bookkeeping firm". As per President, ICAI (January 25, 2011), "The Satyam trick was not a bookkeeping or examining disappointment, but rather one of CG. This pinnacle body had discovered the two PWC examiners by all appearances blameworthy of expert offense". The CBI, which explored the Satyam extortion case, additionally accused the two inspectors of "complicity in the commission of the misrepresentation by intentionally ignoring the bookkeeping anomalies". The way of life at Satyam, particularly commanded by the board, symbolized a dishonest society. On one hand, his ascent to fame in the corporate world, combined with enormous weight to awe financial specialists, made Mr. Raju a "forced pioneer to convey extraordinary results". Despite what might be expected, Mr. Raju needed to stifle his own ethics and values for more prominent else's benefit of the organization. The board schemed with his activities and remained as a visually impaired onlooker; the draw of enormous remuneration to individuals further supported such conduct. At the same time, at last, truth is looked for and those damaging the lawful, moral, and societal standards are reprimanded according to procedure of law. General society admission of extortion by Mr. Ramalinga Raju discusses respectability still left in him as a person. His acknowledgement of blame and fault for the entire disaster demonstrates a splendid spot of a generally "altered" character. Subsequent to stopping as Satyam's Chairman, Raju said, "I am presently arranged to subject myself to the laws of area and face results thereof". Mr. Raju had numerous moral quandaries to face, however his tireless indecent thinking brought his own downfall. The extortion at last needed to end and the suggestions were having broad results. Accordingly, Satyam trick was not a bookkeeping or evaluating disappointment, but rather one of CG. Without a doubt, the legislature of India took brief activities to secure the enthusiasm of the financial specialists and protection the validity of India and the country's picture over the world. Moreover, the CG system needs to be fortified, actualized both in "letter and additionally in right soul", and authorized vivaciously to check desk wrongdoings.

Reference:

“http://www.vikalpa.com/pdf/articles/2011/Pages-from-Vikalpa36-3-9-20.pdf?” http://en.wikipedia.org/wiki/Satyam_scandal http://qz.com/379877/the-satyam-scandal-how-indias-biggest-corporate-fraud-unfolded/ http://www.hindustantimes.com/business-news/all-you-need-to-know-about-multi-crore-satyam-accounting-fraud/article1-1335467.aspx http://whistleblower.org/satyam-scandal
http://www.scirp.org/journal/PaperInformation.aspx?paperID=30220#.VWCt7dyqpHw