Satyam is the fourth largest Indian IT company and it has been known as the one of the best Indian IT companies to work with and it has risen past several companies to bag several projects. Its revenues were in the range of 10,000 crores a year and have a roster of about 650 clients all over the world that used to offshore their work to Satyam.
This company’s founder is Mr. Ramalinga Raju who in a letter to the Board of Directors said that he has for the past seven years overstated the accounts and that the total profit margin of the company is only 3% even though he has been fraudulently showing a profit margin of about 25%.
That means he was showing a cash at hand I mean in the bank accounts to be 5000 crores about a billion dollars whereas the cash is only 640 crores or even less in the accounts. That letter caused a stir and the jobs of about 55000 employees are at stake as well as the whole future of the company is at stake.
Satyam vs. other IT companies
Other IT companies especially those operating from Indian IT shores such as Wipro, Infosys and TCS have more revenues than Satyam but the fact is that each of them and even some companies smaller than Satyam have a profit margin of about 25% or so.
Satyam is saying that the profit margin is only 3% which is very hard to believe and hence the big question is where are the money and the reason for overstating the profits and the cash in hand.
The problem is why Satyam has such low profit margins which means that there are more employees than there is work and secondly if indeed the revenue is that much then why the profit margin is less and if it is same as other companies the where did the money go ?
Work of Auditors In ?
The auditors internal as well as external should have known this. Internal auditors can be hand in glove with the management but what happened to the external auditors as to why they did not suspect something wrong.
In this the case the external auditors were PEC or Price Water House Coopers and that means PwC knew about the fraud all along or they did not do proper auditing.
In fact they were paid much more than what other Indian IT companies paid their auditors.
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