The questions Satyam must address
Could PWC, SEC and others help me out here?
When I read the resignation letter of Satyam’s CEO, it triggered a number of questions for me.
Raju insists no one else was involved.
1. Can that be right? Here’s my problem with this. Any firm the size of Satyam would have someone responsible for every major client and entire market/services segments. There would be executives poring over sales data, forecasts, bookings, etc. All sorts of people would have management reports that would detail the breakout of revenues by client, area of the world, etc. If my client bookings were all of sudden higher than I thought they should be, I would investigate the matter. Was I missing some commission or had Accounting made a mistake? I wouldn’t want my client to get overbilled either. So, how did Raju overstate revenues FOR YEARS without anyone else noticing? Even if he made up some fictitious client, that client’s revenues would have appeared in some executive’s performance reports. Someone would have responsibility for this bogus client. The only other explanation is that the person responsible for this bogus client work was in on the fraud. Also, who were the staff and project team leads for this overstated work? Didn’t they see a mismatch between the contract, billings and Satyam revenues?
2. Can a CEO manipulate this data without the CFO, auditors, COO or the board getting wise to the deception? Here’s a firm with approximately $2 billion in revenue. Can you name a firm of this magnitude that doesn’t have automated accounting systems? Can you name a firm of this size where there aren’t clear divisions of responsibility between the Controller, CFO and CEO. In well run firms, the Treasurer can move money but not create journal entries. The Controller can enter journal entries but not cut checks. The CFO may not have journal entry authority but can sign checks. The CEO usually cannot do either: cut checks or enter journal entries. Someone obviously let the CEO do more than he should or else others were participants in this scheme.
3. Where is Satyam’s CFO in this matter? Apparently, he’s been unavailable. According to Reuters:
"The CFO Srinivas (Vadlamani) has actually sent in his resignation today; we have not approved the resignation." "We have been in constant touch with the CFO. He had not been coming to office due to personal reasons but he had been cooperating fully in terms of the information he is to provide and channels he is to open up for access. "What I understand is that he is very much in Hyderabad, but he assured us he will be at work next week."
The Wall Street Journal indicates that the CFO had resigned recently and is in possession of Satyam’s books.
Satyam Computer Services Ltd., whose chairman has admitted concocting financial results, says it can keep operating -- but it's strapped for cash and its books are with a chief financial officer who's resigned and hasn't come to the office recently.
I’ve known a lot of CFOs in my life but I’ve never met a one who took the books of his old employer home with him/her. Did this person know something and took the books as some sort of hedge against future prosecution or to use as leverage? This is more than a bit odd.
4. Is Raju falling on his sword in a vainglorious or quasi-noble effort to spare his family and colleagues from prosecution or litigation? Given how much of his resignation letter concerns this point, I suspect he is. Part of this emanates from the paternal attitude some CEOs, especially founders, have towards their staff and family. Of course, he’ll say it was all his doing but that’s one big scam to pull off, successfully, for a lot of years without help from others. My guess is he will stonewall investigators as to the role of others in this fraud and hope that his admission will placate regulators, litigants, etc. It won’t work. This fraud is too big, too visible and too egregious to have its scope limited to just this one individual. Eventually, I would expect a lower level person or family member to cooperate with authorities and then it will erupt.
5. Can we trust anything in this resignation letter? No. Consider the source and what this person has already done. If ever data needs verifying, this is the time.
6. What was missing from the resignation letter? A lot. Raju, interestingly, can tell you the amounts that individual financial statement line items are off but he does not provide any detail in how the fraud was committed. I found that particularly telling. Also, there is probably a lot more to tell concerning the aborted attempt to buy the two firms last month and how these transactions would eventually shore-up Satyam’s financials. Think about this for a minute. Why would the other executives in these two businesses agree to have their firms acquired under terms where they would not their cash for years into the future? No rational executive would agree to this unless they knew about Satyam’s woes and/or have one strong sense of family commitment. Regulators need to look at the executives of these two firms to see what they knew, when they knew it, etc.
7. How did $1billion in cash go missing and why didn't anyone notice its absence? Did PriceWaterhouse not get confirmations re: bank balances or were banks complicit in the fraud? I really doubt the latter but something is hinky here. Satyam may be running out of cash now and, if Raju’s numbers are right, Satyam can’t have much cash at all right now. Somebody needs to start checking in the sofa cushions at Satyam because I suspect they’ll need every rupee they can find. Better check the mattresses of some the executives, too!
Do I have questions? You bet! Time for the forensic accountants to swoop in fast!