Satyam fraud may catch Maytas cos in its vortex

New Delhi: The magnitude of accounting fraud at Satyam Computer Services Ltd could be far larger than what has been admitted by the firm’s chairman B. Ramalinga Raju, and resultant investigations could extend to the Raju family-run Maytas Properties Ltd and Maytas Infra Ltd, forensic accountants said.
Accounting frauds typically are built on a series of fictitious transactions, and unravelling them leads to numbers bigger than what is stated, accountants said.
According to Raju’s letter on Wednesday to Satyam’s governing board members, the 30 September balance sheet has fudged entries with an aggregate value of Rs7,136 crore, which includes a fictitious cash balance of Rs5,040 crore.
“There is enough evidence to suggest there needs to be a detailed forensic investigation,” , partner at audit and tax consultancy firmVishesh C. Chandiok Grant Thornton India, said.
Chandiok’s colleague, Anil Roy, who heads the firm’s forensic accounting team, said such frauds rapidly grow in proportion as the ambit of the investigation expands. “If the first fraud is for Rs100, the next time add another zero. It (accounting fraud) grows exponentially,” he said.
Forensic accounting teams pool multidisciplinary resources to provide an accounting analysis that is in line with what courts want. Grant Thornton’s forensic accounting team, for instance, has a mix of qualified accountants and former police officers who bring to the table investigative skills in unravelling fictitious transactions.
In Satyam’s case, Raju’s revelation is unlikely to be the full story, another expert said. “This is the tip of the iceberg. Maytas will be dragged into this,” predicted Deepankar Sanwalka, head of forensic accounting practice at audit and consultancy firm KPMG, pointing to the likelihood that New York Stock Exchange-listed Satyam would also fall under the jurisdiction of the US’ Securities and Exchange Commission (SEC). “People will realize when SEC gets into investigating, it can be tough.”
According to Raju’s letter, the attempt in December to merge the two Maytas companies with Satyam was part of broader attempts to transform fictitious accounting entries under cash and bank balances on the tech vendor’s books into real investments.
When faced with a case such as Satyam’s, which involves unravelling a chain of fictitious transactions, Roy said he would demarcate the accounts into blocks of two-three years. Once the forensic accountants went over a block’s books with a fine-tooth comb, they would get a good idea about when the fraud started, he added.
Raju’s letter on Wednesday said the accounts had been fudged over the last few years, and an important part of it showed up in the form of inflated cash and bank balances of Rs5,040 crore.
“Cash and bank balances are one of the easiest things to audit (for an external auditor),” Sanwalka said.
An audit consultant from another firm, who did not want to be named, said there are instances overseas of clients intercepting banks’ confirmation messages to external auditors on the exact cash position to hide fraud.
A popular saying that captures the process of accounting fraud of the kind Satyam has likely engaged in is, “You have to say a hundred lies to cover the first lie,” Chandiok said.
Raju’s letter indicated the promoters had lost control of the situation. “It was like riding a tiger, not knowing how to get off without being eaten.”
The consequences of Raju riding the proverbial tiger are likely to be felt by other Indian companies. “It (Satyam’s case) throws a big question on real corporate governance standards in India. There are going to be long-term ramifications,” Sanwalka said.

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