Missing $1 Billion In Cash? Get In Line. The Phone Line.

Missing $1 Billion In Cash? Get In Line. The Phone Line.

Summary: So we're shocked. Satyam Computer Services is missing $1 billion of cash and bank loans.

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TOPICS: Banking, Mobility
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So we're shocked. Satyam Computer Services is missing $1 billion of cash and bank loans. Chairman Ramalinga Raju says he falsified accounts.

Raju just wanted to maintain operating margins. Which does not quite explain why cash is missing. You don't need to make up cash or balance sheet assets like bank loans to improve operating margins. You have to make up revenue to do that. So you can bet that's going to be restated, too.

This isn't the first time a billion has gone missing. Bernard Madoff of course made off with $50 billion.

And four years ago or so, the Italian company that got famous making shelf-stable milk, Parmalat, said it had $4.9 billion in cash in a Bank of America bank account in the Cayman Islands. But it didn't.

In the Bernard Madoff case, it's easy to see how billions go missing. He just spent it or hid it. He didn't pretend to have it in banks. He had a gimcracky accounting firm and no investors asking serious questions.

But Parmalat and Satyam are public companies. They have to provide statements confirming cash and loans with a bank. Parmalat was audited by Grant Thornton. Satyam by Pricewaterhouse Coopers. Big, global accounting firms (like, ahem, the late great Enron-ized Arthur Andersen).

In the Parmalat case, the bank statement was made up. In this case, investigators will be picking over fraudulent documents, as well. And they'll probably use an ingenious technological answer to confirm whether a given chunk of cash actually exists.

The telephone. Find the officer who runs the bank and get confirmation on your own that the money actually exists. Check the facts. No one did, with Parmalat. It's likely the same here.

The proof is clear. There's always a way to make documents look real. And computer services firms are expert at making digits up on the spot.

What a chief executive puts in front of you is one reality. What he or she says does not make anything real.

There are two questions that fall out here: Can you trust Satyam? And, can you count on Pricewaterhouse Coopers?

Poor PWC. It may even manage to become a target in the Madoff madness. It was Fairfield Greenwich Group's auditor. And that Madoff feeder fund wants to know where its customers' money went.

When billions of cash go missing, you can pretty much be sure that calls (or visits) did not get made to the right places by people who should know how to get independent confirmation of the basic lifeblood of business.

Topics: Banking, Mobility

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  • There's a lot more to this

    @tom: as it stands, the fraud it difficult to understand as I said in my earlier ZDN blog posting. Since then, events have moved forward but the essential problems underpinning audit remain. I'm calling for a different system though I appreciate it opens a Pandora's box of possible questions. In truth, the profession can no longer dodge the issues.
    dahowlett
  • 2 events happened this year

    1. Populations around the world learned their bankers are apt to be criminals.
    2. Politicians learned that at some point since Hammurabi,
    their power has been abrogated by the Financial Sector.

    Now it'll get intersting
    dcsos