Presentation Description: Financial Statement Fraud & Corporate Governancethe Satyam Case
Presentation Description: Financial Statement Fraud & Corporate Governancethe Satyam Case
Presentation Description: Financial Statement Fraud & Corporate Governancethe Satyam Case
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CHALLENGING TIMES :
CHALLENGING TIMES Number of financial statement frauds on increase Frauds against organizations are increasing Some recent frauds involve multiple individuals colluding to defraud Many investors have lost confidence More interest in fraud than ever before -now a course on many university campuses Forensic accounting and auditing/ IT Systems Audit Security/Controls/risks assessment
Types of Fraud :
Types of Fraud Fraudulent Financial Statements Employee Fraud Vendor Fraud Customer Fraud Investment Scams Bankruptcy Frauds Miscellaneous The common element is deceit or trickery!
Why Confession ? :
Why Confession ? Recession drained the liquidity to run the show Out standings were piling up Since listed in US, SEC rigors would take over Unmanageable gap between actual and book
profit Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.
Consequences of confession :
Consequences of confession Investors- Panicked as Stock plummeted & Class action suits filed in US Employees- stranded in many ways- morally, financially, legally and socially Customersshocked and worried about the project continuity, confidentiality and cost over run Bankers concerned about recovery of financial and non-financial exposure and recalled facilities Government- worried about image of the Nation & IT Sector affecting faith to invest or to do business
Modus Operandi :
Modus Operandi Held weekly Board meetings-TN was stationed at Satyam round the clock Raised $135 million from 2 banks to supplement internal accruals Cleared all statutory dues; Paid global salary including insurance and taxes; Released payments to other dues Kept meeting, talking to and reaching out to employees and customers Video clippings; teleconference calls; personal meetings; E-News letter & Weekly Bulletin
after due deliberation Investment Bankers appointed, Bidding process set in motion with Former Chief Justice of India as Observer SEBI and CLB were moved for appropriate relaxations
Bidding Process :
Bidding Process Press release on 9th March inviting registration RFP was sent to 141 registeredonly 10 submitted EOI Out of 10, 7 met the criteria and were sent documents for execution 5 submitted documents but later 2 withdrew for want of internal approvals leaving 3 in race Thus, WL Ross; L&T and Tech Mahindra competed Information had to be given to Bidders to facilitate quoting price per share for preferential allotment
ROAD AHEAD :
ROAD AHEAD
Corporate Lessons to be :
Corporate Lessons to be Audit Committee meetings-adequacy of notice and adequacy of duration Criteria for remuneration to Key Personnel Effective whistle blower policy in place Focus on Intangibles & Tangibles follow Education on Ethical values
Slide 30:
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