I am truly intrigued…sure all of you too are…. as to how Ramalinga Raju of Satyam got past the auditors,Price Waterhouse (PW)
So when PW disclosed a few days ago that they had appropriate evidence to support the Satyam audit,it really got me thinking
It would thus seem that PW must have seen the Bank’s Fixed Deposit Receipts which supported their Values in the Satyam Balance Sheet…We know now that these deposits were largely fictitious…so either PW was shown forged bank deposit receipts (possibly,but not necessarily, in collusion with Bank Employees) or Genuine bank deposit receipts but no longer valid
If it was a case of forgery,then it is self explanatory how this fraud happened
But what if the origin of these receipts was genuine ?
Years ago when I was doing articles,I came across several fraudulent situations….Same Inventories were shifted from one Godown to another to show that they represented and reflected two different Closing Stock Entries in Two different Group Companies….In another case,this was long before Demat,a promoter of a large Industrial Group reported his Physical Share Holdings in his flagship as lost to his own company.The company re-issued the shares as duplicate shares….The Promoter who had pledged his holdings for a Loan and had not really lost the shares, was now able to pledge the duplicate shares with another Bank to raise another loan !…Remember How Harshad Mehta used the Bank Receipts (BR) route where on one set of Bonds against which a BR was issued in ready forward deals,he created several leverages on just that one BR with different banks !
So what if the Game plan of Ramalinga Raju was like this
Bank Deposits were actually created and Receipts obtained
Later the banks were intimated that Satyam had lost the original receipts and could the Bank issue Duplicate Ones…Banks may have Obliged as Satyam was a Top Customer
Using these Duplicate Receipts, Ramalinga Raju prematurely redeemed the Deposits and created fresh deposits in new banks and played out the same game again and again
However the Auditors,Price Waterhouse, must have been shown all the original Bank Deposit Receipts to back up the Balance Sheet Amounts…They accepted these for years without investigating the Interest element or verifying the existence of the Deposits independently and directly with banks…Even assuming that PW may have done this and Bank Employees may have colluded with Ramalinga Raju and provided the deposit confirmations even though no Deposits existed,then auditing the Interest Accrued Entries would have exposed all of this…as these remained unpaid quarter after quarter,auditor antennas should have been raised….there is no question of TDS unless interest was paid.
So Hypothetically,as Ramalinga Raju confesses the Cash Hole is Rs 5040 crs,PW must have been shown original Bank Deposit Receipts of around this amount
To illustrate,an original Rs 500 crores must have been rolled over as fresh deposit in newer banks after being prematurely redeemed after obtaining Duplicate Receipt on claiming the Original receipt was Lost or Misplaced…This routine was replayed in different banks and would have equipped Ramalinga Raju with Several Original Bank Deposit Receipts to show to the auditors,PW
It is simply a one Hour job to confirm all of this….Just take the copies of the Original Bank Deposit Receipts which PW must have as evidence in their Files and verify each with the concerned banks…The banks will confirm that they had issued such Receipts,but on them being reported lost ,duplicate receipts were issued and against which the deposits were prematurely broken.Thus the Original Receipts,which were reported as lost,were no longer Valid…..Of course PW should have also confirmed and verified the Bank F D Statements which would have also carried Interest paid and accrued entries.Mere bank receipt or FD Certificate should not have been accepted as evidence.