Satyam Case Study

What exposed the fraud?

Satyam’s seven years of manipulation and fraud was not discovered until its acquisition failure of Maytas, in December 2008. A chain of events that occurred around the same time left Satyam’s CEO with no choice, but to reveal the truth (Exhibit I). Over the years, Satyam’s management had been manipulating the company’s books by inflating cash and bank balances, understating liabilities, and creating fake employees. At quarter end September 2008, Satyam over reported operating margins by 21% (Yadav & Baxi, n.d., p. 4). Management had gone too far in its fraud crime and it had no way to close the gap between what were reported in the book and the actual numbers. According to the Raju’s confession on his resignation letter, acquiring Maytas Properties and Maytas Infrastructures was the firm last attempt to fill in the gap (Yadav & Baxi, n.d., p. 19). Therefore, Satyam’s failure in acquiring controlling shares in Maytas was a hard hit, which led to the fallout of the fraud. Moreover, within a short period of time, five of Satyam’s independent board members resigned after revealing that the Maytas takeover attempt was not fully approved by the board (Yadav & Baxi, n.d., p. 4). The resignation of most of Satyam’s independent board members around the same time indicated that problems existed in Satyam’s governance, which led to the fluctuation in the firm’s share price. The World Bank, one of Satyam’s largest customers banned Satyam from doing business with it for eight years. Even though, the World Bank did not pursue Satyam with bribery charges, Satyam’s financial condition was not strong enough to withstand this huge revenue loss. In fact, Mynampat, the firm’s interim CEO told reporters that the company’s cash position was “not encouraging” and that “our only aim at this time is to ensure that the business continues.” (Wharton, 2009).

Fraud Triangle

The fraud at Satyam can be explained clearly through the fraud triangle. Satyam was under perceived financial pressure, competitor pressure, and shareholders’ and stakeholders’ expectations. The pressure for Satyam to succeed was extremely intense as it was India’s fourth largest IT company and the firm had won numerous prestigious awards (Yadav & Baxi, n.d., p. 15,16). Additionally, Satyam had pressure during the financial crisis in 2008-2009 to maintain the firm’s appearance of a strong financial position, even though the position was created by manipulating numbers. Specifically, Satyam’s management needed to keep up the stock price when the firm’s actual profit was only 3% as opposed to 24% as claimed (Yadav & Baxi, n.d., p. 4). Management needed to close the gap between the inflated numbers it reported on its books and its actual accounting. Raju had pressure to keep his promise to lead