Friday, January 9, 2009

Satyam Computers-

B. Ramalinga Raju, Chairman of Satyam Computers, after having made a confession, by his letter dated 07-01-09, leaves one question, still unanswered, inspite of the company’s press conference, as also after an initial probe by Registrar of Companies and SEBI, whether Rs.5,000 crore exist in the company’s books or not?
On one hand, we have audited balance sheet of the company, as at 31-03-08, which states that the company had a cash and bank balances of Rs.4,502.42 crores as also accrued interest on fixed deposits, of Rs.272.50 crores. Details of Rs.201.19 crores held by the company, with non-scheduled banks, have been given in the balance sheet, which runs in 58 branches of various foreign banks, spread across the globe, Details of balances held with various scheduled banks, are not required to be given. However, Rs.965.70 crores were lying in current account and Rs.3,325.24 crores in Deposit accounts of various scheduled banks, as at 31-03-08. Incidentally, these scheduled banks had a balance of Rs.424.29 crores in current account and Rs.3,371.26 crores in deposit account, as at 31-03-07. Scheduled Bankers of the company were only three banks, which are Bank of Baroda, HDFC Bank, and ICICI Bank.
It may be noted that the balance sheet of the company, as at 31-03-08 and as at 31-03-07 have been audited by the Price Waterhouse (PWC) and signed by Srinivas Talluri, Partner of PWC bearing membership number 29864.
As a part of audit process, it is an elementary and mandatory work, to check the cash and bank balances, as also to see bank reconciliation statements, having prepared by the client, by the Auditors. In this case, list of 54 banks have been given, for balances, held by the company, with non-scheduled banks. Similarly, a list must have been prepared, (which must be in possession of he Auditors and Accounts Department of Satyam) of the balances, held in all accounts, by the company, with scheduled banks.
We doubt that an auditor, like standing of PWC, must not have asked or verified or collated the bank balance details? If really they have not, they have no right to exist and partner of PWC, Srinivas Talluri should be held more guilty than Ramalinga Raju.
But if we presume, the bank balances of Rs.4,502 crores, were existing on 31-03-08 (Rs.3,991 crores on 31-03-07), which is most likely, than it has been siphoned off, embezzled by Raju between 01-04-08 to 07-01-09.
However, Raju, by his letter dated 07-01-09 had stated that cash and bank balances are inflated by Rs.5.040 crores. Even the acting CEO of Satyam, Ram Mynampati (Earlier President & Whole Time Director) could not confirm whether this balance exists or not, as at 31-03-08 and as of date.
However, we all are trying to believe the statement of Raju, that no cash and bank balance exists, How can we believe Raju, who has proved to be a fraud and why don’t we verify its authenticity, with the bankers of the company?
It is very essential to know or track, upto which point of time, these bank balances were existing. This can be verified by taking these steps:--
1) Call for audit working papers from PWC and ask for break-up of deposits held with scheduled banks, as at 31-03-08 and as at 31-03-07. This will be a limited enquiry, which can very well be initiated by an authority and would not be held as breach of client confidentiality agreement of PWC.
2) Call for similar details from accounts department of Satyam. Even a junior accountant would be able to give this or same must be existing in working paper files, in soft and hard formats, with Satyam.
3) On getting these details, go and check with those banks, whether balances as stated therein, were existing at any point of time?
If these balances were never existing at any point of time, PWC is more responsible then even Raju and held them responsible. If these balances were existing at some point of time, track them till they got embezzled, siphoned off or wiped off.
It may be possible, that after 31-03-08, Raju may have pledged Deposit receipts with respective scheduled banks to draw overdraft against those deposit receipts for the benefit of his personal accounts or for his associate companies. If it has happened, such scheduled banks should be held responsible along with Raju and not PWC.
If we are able to track the point, where, Rs.5,000 crores of company’s bank balances have been embezzled, it would be easy and possible to track the operating performance, profitability ratios etc. of Satyam, very easily.
It may also be noted that as per Raju’s confession, he has stated that liabilities are understated to the extent of Rs.1,230 crores. This means, either expenses of Satyam were not booked in the books of the company or they were paid and discharged by Raju from his personal sources, so as to keep profit of Satyam inflated.
Also, overstated debtors, by Rs.490 crores, as per confession of Raju, largely represents, overbilling of Q2, to the extent of Rs.588 crores. This can easily get checked, as scrutinisation of one quarter billing is possible.
Similarly, accrued interest of Rs.376 crores, is non-existent, as alleged by Raju, could happen only if Deposits were not existing with the scheduled banks as at 31-03-08 and 31-03-07. In that situation, if deposits were not existing on those dates, PWC should be held responsible with Raju.
Hence, to ascertain the truth of the alleged overstatement of profits of Satyam, by Raju, it is necessary to track this short route of bank balance transactions, by which truth will come out on surface.
So why it is taking so long, by all the investigation agencies to do so? Why no statement is being given by anyone on the existence of bank balances? Whether they were existing as at 31-03-08 and as of date?
The total networth of Satyam is estimated to be Rs.8,000 crores, of which about 60% is represented by cash & bank balances. So if these bank balances were void ab initio or were non-existent, from day one, it is a great lapse of audit procedures as also lapses on part of board members, audit committee members and executives of the company.
Alternatively, if it vanished after 31-03-08, story will be totally different, and bankers of Satyam would be responsible and then, Satyam can also be held to be having great value.
Source: (By S P Tulsian)

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