The Satyam saga - blame it on the auditors

It is now crystal clear that Mr. Rama Linga Raju, the Founder and till recently the Chairman of the board of Satyam Computer Services Limited, a listed, public-owned and widely traded company that is India’s fifth largest IT company by revenue and an E&Y award winner as ‘The most admired company’ in 2007 has cheated the Satyam investors.

He not only diverted funds from the reserves of the company to satisfy his unending appetite for land, he also created around 13,000 fictitious employee records to inflate the salary bill and siphon out money. Though the Satyam bankers have denied opening any bank accounts for these fictitious employees, it remains to be investigated how this money was transferred out of Satyam’s bank accounts. If any complicity by anyone at HDFC Bank, one of Satyam’s bankers is even suggested, Mr. Deepak Parekh should step down immediately from the Government appointed Satyam board chairmanship.

It is therefore no surprise that the net profit margins (NPM) of Satyam were lower than the top four IT companies for all these years. The balance sheets of Satyam over the last seven years show the NPM averaging at around 20% against the top four companies average of 28-30%. Which means by overcharging salaries he depressed the gross profit margins (GPM) and thus the NPM of Satyam.

In effect he also understated the Earnings per share (EPS), which led to a greatly reduced market value for the Satyam stock. He caused massive erosion in the daily trade turnover, which also caused a great revenue loss for the exchequer.

When cornered he admitted that he had overstated the GPM due to competitive pressures and that the actual GPM was much lower. What he wanted us to believe was that the profits were non-existent and never accrued to Satyam while the truth it appears is that the profits were real, the expenses were not and thus Raju was not merely guilty of window dressing the Satyam book of accounts. He was responsible for large scale swindling of investor wealth.

The question uppermost in the mind of a common man would be “Who guards the stake of a small investor whether investing through the primary or the secondary market or through the Mutual Fund route?”

Similarly the State needs to ask itself “Who ensures that the State gets its rightful dues in Income Tax, VAT, Security Trading Tax and so on?”

Obviously sharks like Raju are lurking to steal and swindle. What are the ‘Eyes and ears of the investors’ like SEBI doing? Just pinning the blame on Price Waterhouse Coopers (PWC), the Satyam auditors and sitting smug is not going to be enough. PWC are global players with more than two hundred years of experience and know well how to play this game of ‘passing the buck’. They would have reams of fine print in their agreement with Satyam to save their skins.

The games must stop. The law should be allowed to take its course and Raju tried in a fast track court. If convicted he should be made to pay dearly. All his assets must be taken away and he should be forced to lead the life of an ordinary man once again.

If he is all that smart, let him start Chapter II of his life or better still Satyam II, if anyone would lend him a dime for business.