PRESENTATION ON ACCOUNTING FRAUDS
RITESH KUMAR
SATYAM FRAUD
Company Profile
Set up in the year 1987
by B.Ramalinga Raju. India s 4th biggest software company with 9% market share. Listed in BSE, NSE, NYSE and Euronext (Amsterdam). On 26th August, 1991 it was converted into a Public Limited Company and went for PUBLIC ISSUE in 1992. BSE IPO oversubscribed 17 times when made public.
The company employs
40,000 IT professionals across development centers in 6 continents. It serves over 654 global companies, 185 of which are Fortune 500 corporations.
The Satyam Accounting Scam Finally Exposed
Satyam scam is the biggest fraud in India's corporate history. The company management, primarily its disgraced chairman B Ramalinga Raju, kept everyone in the dark for nearly a decade.
The Scam and Raju s Confession
On 7 January 2009, company s previous Chairman Ramalinga Raju
resigned after notifying board members and the Securities and Exchange Board of India (SEBI) that Satyam's accounts had been falsified.
Raju confessed that Satyam's balance sheet of 30 September 2008 contained: 1. Inflated figures for cash and bank balances of Rs 5,040 crores as against Rs 5,361 crore reflected in the books.
2. An accrued interest of Rs. 376 crore which was non-existent. 3. An understated liability of Rs. 1,230 crore on account of funds was
arranged by himself.
4.
An overstated debtors' position of Rs. 490 crore (as against Rs. 2,651 crore in the books.
RAJU S CONFESSION
Excerpts from his confession:
It was like riding a tiger, not knowing how to get
off without being eaten. Every attempt made to fill the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thus exposing the gap. The aborted Maytas deal was the last attempt to fill the fictious assets with real ones.
The guilty and the partners in crime
The Satyam board, including its five independent
directors had approved the founder's proposal to buy 51 per cent stake in Maytas Infrastructure and all of Maytas Properties, owned by the family members of Satyam chairman B Ramalinga Raju. Despite the shareholders not being taken into confidence, the directors went ahead with the management's decision. The decision of acquisition was, however, reversed 12 hours later after investors dumped Satyam's stock and threatened action against the management.
The guilty and the partners in crime
It is said that the Satyam
management s malpractices led to Satyam s fallout but could only two or three people of management cook the accounts books for years of a company for so long? Here the role of auditors started .
PWC Satyam s auditors since Jun 2000 Credibility of PWC???... amount too big to be noticed PWC:
our audit in accordance with the auditing standards generally accepted in India Satyam's financial statements are the responsibilities of the company's management under Satyam s management controls over financial reporting and auditing Audit reports between June 2000 to September 2008 unreliable
What went wrong
Manipulation of softwares Lack of audit controls and Systemic reviews Insider trading
Enron Scandal
Key Players in the Enron Scandal
Kenneth Lay
Former CEO of Enron, helped start the company. Enron extended to him $7.5 million revolving credit line, which he reportedly used and repaid with Enron stock 15 times within a period of just several months He quit as CEO in February 2001 He returned as CEO in August 2001until he resigned on Jan. 23, 2002 He quit the Enron board altogether on Feb. 4. Sherron Watkins said Lay was "duped" by top executives
Jeffrey Skilling
Enron's chief executive in the first half of 2001 Since joining the company in 1990, Skilling helped transform Enron from a natural-gas pipeline company into an energytrading powerhouse. Between January and August 2001 he sold off about $20 million in Enron stock Resigned after the close of markets on Aug. 14 2001 Being charged with conspiracy, fraud and insider trading
David Duncan
Enron's chief auditor at Anderson His job was to check Enron s accounts He is accused of ordering the shredding of thousands of Enron-related documents in an effort to hide them from Securities and Exchange Commission investigators
Andrew Fastow
Former Chief Financial Officer of Enron The mastermind behind the deceptive accounting practices Lea Fastow (his wife) also plead guilty to signing and filing a tax return that did not include income the Fastow s had received from Mike Kopper
Sherron Watkins
Known as the "Enron whistle-blower" Was Enron's vice president of corporate development Wrote a letter to Kenneth Lay about suspicions of accounting improprieties" Not really a whistle-blower because she never went public with her suspicions
How did the collapse begin?
Energy companies lobbied congress in the 1980s for deregulation of the energy business Energy policy was changed and Washington lifted controls on who could produce energy and how it was sold Jeff Skilling took and aggressive approach to expand Enron by trading futures in gas contracts
Skilling s Plan
Under Skilling s new plan Enron bet against
future movements in the price of gas-generated energy Enron bought and sold tomorrow s gas at a fixed price today With every trade, Enron took a cut for transaction costs Using the internet to promote trading, Enron became the most successful player in the futures game; 90% of Enron s income came from trades
Early 2000
Enron took advantage of the dot.com boom and traded internet bandwidth The value of Enron s online transactions was huge ($880 billion) The problem was Enron wasn t making money on many of their online trades because they made the market very efficient
Fuzzy Numbers
Enron began tweaking the numbers in their financial statements with accounting techniques to hide their losses Enron created partnerships, and then passed the assets (losses) to these partnerships which eliminated the losses from their balance sheets
Sherron Watkins, the Enron Whistleblower noticed the fuzzy accounting that had been used in relationship to the Condor and Raptor partnerships and wrote a letter to Kenneth Lay and Arthur Anderson warning him that the Enron was unstable.
Why wasn t Enron caught earlier?
Throughout all of this, Enron and its key members were making political contributions to the white house and congress. Kenneth Lay donated $100,000 to President Bush in 2000, and in 2001 Bush invited Lay to become an advisor to his transition team.
In the year 2000,
Kenneth Lay met three times with Dick Cheney to discuss energy policy review. When the review was published in May 2001, it was very favorable to the Enron and the energy sector.
WORLD COM SCAM
Company Profile
Name Year Head Office World Com 1983 Clinton, Mississippi in
Core Business
the Georgia state of USA providing long distance call services
Business Strategy
Mergers and Acquisitions Joint Ventures Partnership
Accounting Scam
frauds by manipulations in the financial statement by capitalizing some revenue expenditure about $ 7683 million within 3 years and showed it as capital assets in the Balance Sheet By violating the principles of GAAP
Reasons
Fall in earnings due to
Rise of mobile culture recession in American Economy Failure of M&A (due to non synergy)
Profitability after Scam
Particulars
2001 $ in Million s
2000 $ in Millions
1999 $ in Millions
1998 $ in Millions
1997 $ in Millions
Revenue 35179 Op income 3514
39090 8153
35908 7888
17687 -975
7384 1018
Responsibility Zone
CEO, Bernard Ebber CFO, Mr. Scott Sullivan, Internal auditor, Cynthia Cooper, Auditor, Arthur Andersen.
World Com and India:
Impact on VSNL World Com has to pay VSNL a handsome amount of Rs 150 crore every month. Due to World Com bank ruptcy VSNL was not in a position to recover its outstanding line revenues from World Com which affect VSNL profitability up to an extent.
The Results
CFO Scott Sullivan and Financial Controller David
Myers were arrested
NASDAQ Delist all securities of World Com wef 30
July 2002.
paradise lost for investors
THANK YOU
doc_255760775.pptx
RITESH KUMAR
SATYAM FRAUD
Company Profile
Set up in the year 1987
by B.Ramalinga Raju. India s 4th biggest software company with 9% market share. Listed in BSE, NSE, NYSE and Euronext (Amsterdam). On 26th August, 1991 it was converted into a Public Limited Company and went for PUBLIC ISSUE in 1992. BSE IPO oversubscribed 17 times when made public.
The company employs
40,000 IT professionals across development centers in 6 continents. It serves over 654 global companies, 185 of which are Fortune 500 corporations.
The Satyam Accounting Scam Finally Exposed
Satyam scam is the biggest fraud in India's corporate history. The company management, primarily its disgraced chairman B Ramalinga Raju, kept everyone in the dark for nearly a decade.
The Scam and Raju s Confession
On 7 January 2009, company s previous Chairman Ramalinga Raju
resigned after notifying board members and the Securities and Exchange Board of India (SEBI) that Satyam's accounts had been falsified.
Raju confessed that Satyam's balance sheet of 30 September 2008 contained: 1. Inflated figures for cash and bank balances of Rs 5,040 crores as against Rs 5,361 crore reflected in the books.
2. An accrued interest of Rs. 376 crore which was non-existent. 3. An understated liability of Rs. 1,230 crore on account of funds was
arranged by himself.
4.
An overstated debtors' position of Rs. 490 crore (as against Rs. 2,651 crore in the books.
RAJU S CONFESSION
Excerpts from his confession:
It was like riding a tiger, not knowing how to get
off without being eaten. Every attempt made to fill the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thus exposing the gap. The aborted Maytas deal was the last attempt to fill the fictious assets with real ones.
The guilty and the partners in crime
The Satyam board, including its five independent
directors had approved the founder's proposal to buy 51 per cent stake in Maytas Infrastructure and all of Maytas Properties, owned by the family members of Satyam chairman B Ramalinga Raju. Despite the shareholders not being taken into confidence, the directors went ahead with the management's decision. The decision of acquisition was, however, reversed 12 hours later after investors dumped Satyam's stock and threatened action against the management.
The guilty and the partners in crime
It is said that the Satyam
management s malpractices led to Satyam s fallout but could only two or three people of management cook the accounts books for years of a company for so long? Here the role of auditors started .
PWC Satyam s auditors since Jun 2000 Credibility of PWC???... amount too big to be noticed PWC:
our audit in accordance with the auditing standards generally accepted in India Satyam's financial statements are the responsibilities of the company's management under Satyam s management controls over financial reporting and auditing Audit reports between June 2000 to September 2008 unreliable
What went wrong
Manipulation of softwares Lack of audit controls and Systemic reviews Insider trading
Enron Scandal
Key Players in the Enron Scandal
Kenneth Lay
Former CEO of Enron, helped start the company. Enron extended to him $7.5 million revolving credit line, which he reportedly used and repaid with Enron stock 15 times within a period of just several months He quit as CEO in February 2001 He returned as CEO in August 2001until he resigned on Jan. 23, 2002 He quit the Enron board altogether on Feb. 4. Sherron Watkins said Lay was "duped" by top executives
Jeffrey Skilling
Enron's chief executive in the first half of 2001 Since joining the company in 1990, Skilling helped transform Enron from a natural-gas pipeline company into an energytrading powerhouse. Between January and August 2001 he sold off about $20 million in Enron stock Resigned after the close of markets on Aug. 14 2001 Being charged with conspiracy, fraud and insider trading
David Duncan
Enron's chief auditor at Anderson His job was to check Enron s accounts He is accused of ordering the shredding of thousands of Enron-related documents in an effort to hide them from Securities and Exchange Commission investigators
Andrew Fastow
Former Chief Financial Officer of Enron The mastermind behind the deceptive accounting practices Lea Fastow (his wife) also plead guilty to signing and filing a tax return that did not include income the Fastow s had received from Mike Kopper
Sherron Watkins
Known as the "Enron whistle-blower" Was Enron's vice president of corporate development Wrote a letter to Kenneth Lay about suspicions of accounting improprieties" Not really a whistle-blower because she never went public with her suspicions
How did the collapse begin?
Energy companies lobbied congress in the 1980s for deregulation of the energy business Energy policy was changed and Washington lifted controls on who could produce energy and how it was sold Jeff Skilling took and aggressive approach to expand Enron by trading futures in gas contracts
Skilling s Plan
Under Skilling s new plan Enron bet against
future movements in the price of gas-generated energy Enron bought and sold tomorrow s gas at a fixed price today With every trade, Enron took a cut for transaction costs Using the internet to promote trading, Enron became the most successful player in the futures game; 90% of Enron s income came from trades
Early 2000
Enron took advantage of the dot.com boom and traded internet bandwidth The value of Enron s online transactions was huge ($880 billion) The problem was Enron wasn t making money on many of their online trades because they made the market very efficient
Fuzzy Numbers
Enron began tweaking the numbers in their financial statements with accounting techniques to hide their losses Enron created partnerships, and then passed the assets (losses) to these partnerships which eliminated the losses from their balance sheets
Sherron Watkins, the Enron Whistleblower noticed the fuzzy accounting that had been used in relationship to the Condor and Raptor partnerships and wrote a letter to Kenneth Lay and Arthur Anderson warning him that the Enron was unstable.
Why wasn t Enron caught earlier?
Throughout all of this, Enron and its key members were making political contributions to the white house and congress. Kenneth Lay donated $100,000 to President Bush in 2000, and in 2001 Bush invited Lay to become an advisor to his transition team.
In the year 2000,
Kenneth Lay met three times with Dick Cheney to discuss energy policy review. When the review was published in May 2001, it was very favorable to the Enron and the energy sector.
WORLD COM SCAM
Company Profile
Name Year Head Office World Com 1983 Clinton, Mississippi in
Core Business
the Georgia state of USA providing long distance call services
Business Strategy
Mergers and Acquisitions Joint Ventures Partnership
Accounting Scam
frauds by manipulations in the financial statement by capitalizing some revenue expenditure about $ 7683 million within 3 years and showed it as capital assets in the Balance Sheet By violating the principles of GAAP
Reasons
Fall in earnings due to
Rise of mobile culture recession in American Economy Failure of M&A (due to non synergy)
Profitability after Scam
Particulars
2001 $ in Million s
2000 $ in Millions
1999 $ in Millions
1998 $ in Millions
1997 $ in Millions
Revenue 35179 Op income 3514
39090 8153
35908 7888
17687 -975
7384 1018
Responsibility Zone
CEO, Bernard Ebber CFO, Mr. Scott Sullivan, Internal auditor, Cynthia Cooper, Auditor, Arthur Andersen.
World Com and India:
Impact on VSNL World Com has to pay VSNL a handsome amount of Rs 150 crore every month. Due to World Com bank ruptcy VSNL was not in a position to recover its outstanding line revenues from World Com which affect VSNL profitability up to an extent.
The Results
CFO Scott Sullivan and Financial Controller David
Myers were arrested
NASDAQ Delist all securities of World Com wef 30
July 2002.
paradise lost for investors
THANK YOU
doc_255760775.pptx