One (two) man fraud?

I was amused to read Raju’s letter where he has categorically stated that none of the board members (past and present) or the members of the senior management were even aware of the dish leave  alone the recipe (cooking has been repeated ad nauseam).  This perhaps is an indication of the pressure that was brought on Raju to write that letter.

Let me explain why I find it so amusing!

Anyone with the basic exposure to business will agree that transactions generate revenue.  For example, if there is a sale, there would be in most occassions an order and surely an invoice followed by a receipt when one gets the money.  if it was deposited in the bank either as cash or cheque, there would be a pay-in slip and if electronically transferred, there would atleast be an advice.

Let’s look at the inflated sales and profits and more importantly Receipts.  Clearly, an organization of the size and complexity of Satyam would not run a manual accounting and order processing system.  Possibly it is one of the ERP software products.  In such cases, it would simply be impossible to just casually insert a few crores of rupees into orders, sales and receipts.  One would need to create a mountain of trail (paper or electronic) to get that value into a system.  Even assuming that Satyam did a Rs.250 crore inflation every quarter, they have done it successfully for 20 quarters and that is no mean feat!  Even a blind man would be alerted to the level of additional activity that would be required.  And most importantly, Raju and his brother alone could not have created this entire paperwork on their own.  It would clearly require an army of accountants, possibly innocent but nevertheless a mecessity.  And the Rajus cannot pass on these instructions directly to the operating people who are entering the transactions and hence the CFO and other C level people would be involved, directly or otherwise.  No one would, in his right mind, sign documents of this value without some validation and if some one did, they do not deserve to be in that seat at all.  Either it is complicity or sheer inefficiency.

And as for the Board Members, the less said the better.  If they too were blind to the soaring profits and unutilised cash, not just once but over 5 years, they were perhaps just decorative pieces and nothing more.  Obviously, this does not absolve them of the criminal liability.

And what can we say about the Auditors?  Without their cooperation or blessing, this could not have happened.

So if Raju believes that others can be left off the hook just by that paragraph he is either naive or doesn’t care.  I’m inclined to the latter.

Let’s wait for more such philanthropic words!!



  1. alanbowling said,

    January 8, 2009 at 4:25 pm

    Actually it’s fairly simple to put “extras” in – use of a manual journal entry can put this in to ERP systems. It’s obviously recorded but the key is who is reviewing the manual entries and signing them off? Typically there should be some record of approval and if was an auditor I would want to see this for amy manual entries. But like you say there was more than one person involved here………….

    • badrirag said,

      January 8, 2009 at 4:55 pm

      Alan, it’s not just about the process of creating the trail but the sheer volume and the dependancy on many elements at different levels of the organization. Further, I do not believe that Raju was shielding the other people on his own volition, the way he was mentioning the names of the management team. And his disappearance is not in keeping with his concluding words that he is ready to face the laws of the land and the consequences.

  2. January 8, 2009 at 5:46 pm

    Right on! And that’s the reason why its important to indicate the components-of/potentials-for financial frauds to take place as a necessary consequence of market capitalism. Private auditors, profiteering CEOs, opportunistic investors and corporate clients remain buddies for mutual benefits.
    Raju is a consequence of culture of capitalistic corruption, not an inventor of the same. But being a collaborator in perpetuating this consequence, he must face legal actions along with the entire team of accomplices (the senior level management as well as the multinational auditors) – that is, if the laws of our lands were ever enacted to pursue battle against the rich class.

  3. January 8, 2009 at 5:52 pm

    Raju is unlucky because the couple of hundreds of fortune 500 clients of his are not facing the media wrath now. Nor are the renowned auditors.
    When I said conscience, of course I was saying with a pinch of irony.
    Whether or not he has realized his sins and errors are outside the argument I am making because I merely see Raju as an element of capitalistic culture that must produce corrupt bosses as him unworthy of the riches. Just as it must produce other bosses of private corporations who earn in millions, but as yet been declaring their innocence.
    Its not about a man who has been “caught”. Its about a system that has been normalized as ideal which in reality must and does produce thieves.

  4. alanbowling said,

    January 8, 2009 at 10:25 pm

    You would think so wouldn’t you – but lets suppose that the corporate accounts were prepared from extracts from several systems around the world and that actually a very select team saw the “big” picture – and this was where the adjustments took place. Say for example the individual transactions were recorded in Oracle and were manually moved across into say Hyperion for corporate accounting. Then very few transactions need to be altered. Keeping the big picture away from large numbers of staff is often the call based on avoiding insider trading!

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