Possible Nature of Phantom and Fictitious Accounting Entries in SATYAM

Disgraced and jailed Promoter Chairman,Ramalinga Raju, of Satyam,confessed on January 7, 2009 that there is a huge cash hole of Rs 5040 crs in the Balance Sheet of Satyam as on September 30, 2008 and that for years he has been resorting to Inflating Revenues

So what could be the Nature, Form, Impact and Effect of the Phantom and Fictitious Accounting Entries that Ramalinga Raju and his accomplices must have passed in the Real Books of Satyam ?…. or did they keep a seperate Phantom Set of Accounting Books, possibly off the physical premises of Satyam Offices, which they presented to the auditors, Price Waterhouse

Especially for those not conversant with Finance and Accounts I have tried to present the nature of Phantom and Fictitious Accounting Entries that must have been created by Ramalinga Raju and his accomplices to create such a Huge and Increasing Cash Hole over the Years


Nature of Phantom & Fictitious Accounting Entries in the Books of Satyam 


Accounting Entry

Reflected in





Inflated Sales

of Rs 100


Rs 100

Client Debtors

Balance Sheet under Debtors in Current Assets

Inflates Assets and therefore Networth and Book Value 


 Rs 100


 Profit & Loss Account

under Sales

 Inflates Revenues and therefore Profits that get transferred to Reserves at Year end,thus inflating Networth 



 Against Sales in I above,showing Cost of Sales through Cost Entry for Salaries

at an assumed amount of Rs 75, less than Sales as passed above


 Rs 75

Personnel Expenses

 Profit & Loss A/c

 under Expenditure

 as Personnel Expenses

Increases Expenditure and therefore Cost of Sales and reduces Profit…also creates ‘Benami’ Employees that don’t exist 


Rs 75


Reduces the Bank Balance in the Balance Sheet under Bank in Current Assets

Reduces Bank Balance in the Books



Showing Fictitious Receipt of Rs 100 from   Client Debtors for the Fictitious Sales in I above


 Rs 100


 Increases Bank Balance by Rs 100 in the Balance Sheet under Bank in Current Assets




Rs 100


Cancels out Dr in Client Debtors by Rs 100 being Amount earlier shown in the Balance Sheet by the Inflated  Sales as in I


At Year end the above gets reflected as below in Accounts

 In the     Profit and Loss A/c


Sales of  Rs 100 Less Expenditure of Personnel Expenses Rs 75 = Profit of Rs 25


In the     Balance Sheet


Liabilities : Rs 25 in Reserves being Profit Transferred at Year end from P & L A/c


Assets : Rs 25 in  ‘Bank’ in Current Assets being the Profit reflected as received


So this is How Sales ,Profits and Bank Balance is fictitiously Inflated in the Books of Account


The Problem occurs when Liabilities and  Assets in the Balance Sheet are rolled over to the next year


Thus Bank Balance keeps getting inflated with Increasing Quantum of Fictitious Inflated Sales and Personnel Expenses Entries ,with the cycle being completed by showing Fictitious Receipts from the Debtors


Ramalinga Raju, do you realise that although, if one has to believe you, that your intentions were to prop up Revenue and Profit and margins growths over the years to attract more Business,your Diabolical and Disastrous Creative Accounting created a Frankistien which went out of control and fed on itself

Was it your conscience,Ramalinga Raju,as you say,that led to your courageous confession or was it that you were facing a Hobson’s Choice and were cornered so bad that you had no real option but to make this Confession?… I really don’t know !… But you are a ‘Guru’ ! Man !… How did you have the B____  to do all this…for years…on such a huge scale… and not get caught ! ?…how did you manage to hoodwink your auditors, Price Waterhouse, bankers and tax authorities ! for years? read more

Was this how Ramalinga Raju of Satyam hoodwinked the Auditing Firm of Price Waterhouse for Years?

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.  read more

I had warned you on December 17,2008 to SELL SATYAM AND MAYTAS as they would sink further !

I confess,I did not anticipate this bombshell confession of Satyam Promoter,Ramalinga Raju on January 7,2009 which saw the Satyam price Collapsing from Rs 175 to Rs 40 on the same day

However,after Ramalinga Raju,had announced on December 16,2008,the now infamous Satyam’s Proposal to take over Maytas Companies,I had blogged on December 17,2008 to SELL SATYAM AND MAYTAS as they would sink further

The Blog was titled

Satyam becomes Asatyam as Founder Ramalinga becomes Ravana !

Click on https://www.gauravblog.com/?p=413 for full earlier blog,of which some relevant extracts are as below

Shareholders should get out of both,Satyam and Maytas Infrastructure …Both will sink further as it becomes clear and is established that this was not just a Diversification planned by Satyam,but it was a blatant bailout attempt by a Father of His Sons 

Mr B Ramalinga Raju, you’re a Goner !

Auditors Price Waterhouse….You are sealing your own Fate in this Satyam fraud!

The battered auditors of Satyam,Price Waterhouse,have just issued a letter dated January 13,2009 addressed to their Client,Satyam Computer Services Ltd and marked for the attention of the three New Directors in the New Board and the Company Secretary….This Letter is also been cced to SEBI,RBI,BSE,NSE,New York Stock Exchange,ROC,Hyderabad and the Central Board of Direct Taxes

The Letter reads like a Confession of sorts.First a gist of Some important extracts and then later my observations are as below

  • The letter is signed by a Partner (Name Not Given) on behalf of Price Waterhouse.It is not signed by PWC India Chairman,Ramesh Rajan,who ,a few days ago, sent an email to all employees intimating them that they have begun a comprehensive internal review and requesting them not to discuss the Satyam Issue or offer any comments to the Press or external Sources
  • It refers to the Audit Period from Quarter ending June 30,2000 to Quarter ending September 30,2008…that’s Eight and a Half Years that included 34 quarters
  • PW planned and performed the required audit procedures on the Financial Statements Prepared by Management,examined the books and records produced by the Management and relied on Management for Controls over Financial Reporting,Information and Explanations and Verbal and Written Representations
  • In light of the Confession of Fraud by the ex-chairman and promoter of Satyam,Ramalinga Raju,PW warns that their opinions on the financial statements may be rendered inaccurate and unreliable
  • In accordance with the Guidance Note of January 2003 of the ICAI for Revision of the Audit Report and which prescribes steps the auditor must follow to prevent reliance on audit reports under such circumstances,PW has stated that their audit reports and opinions in respect of the Financial Statements for the Audit Period should no longer be relied on
  • In USA,Under GAAP too such a requirement as above is prescribed…Under Sec10A of the US Securities and Exchange Act of 1934,the Information contained in the Chairman’s Letter indicates that an illegal act could have occured.PW advises the Board of Directors to conduct an independent investigation under this US Law section to unearth this illegal act. 
  • read more

    Slumdog Millionaire, MHADA and Me !

    Instead of greeting me this morning with “Happy Makar Sankrant, Darling”, my wife got me thinking and argueing with her Greeting ” You’re a Slumdog ! Now, when will you become a Millionaire ! ?”

    India Infoline must have been inspired by Women when it tagged it’s line “It’s all about Money, Honey !”

    I cite to my Wife what happens to Millionaires by reminding her about the Satyam Promoter Millionaire.. actually billlionaire…. and now disgraced and in the snare, Ramalinga Raju….. and the possibility that he must have been inspired and pushed by his wife to do what he did !

    This was really impulsively foolish of me….. “What are you implying !?” was her fierce and threatening response……. I’ve now got to fend for myself and eat out tonight ! 

    She’s told me to get up at 3 am tomorrow morning and stand in the Line at the HDFC Bank Branch to get the Form to apply for the Lottery Allotments of Flats in MHADA Schemes in Mumbai at cheaper than market prices !

    Serves you right, Gaurav, for arguing with your Wife !… you would have won against Aristotle, Plato and Socrates ! 

    Danny Boyle ! could you not have titled your Hit Film anything else but “Slumdog Millionaire” ! 

    Hey! Is Times of India Reading My Blogs ? Headlines Today: Did Raju tip off big lenders?…Blogs on Thurs,Jan 8 and Fri, Jan 9,2009 raises this Issue

    Hey ! Times of India’s Mumbai Edition has this Headline Today

    Did Raju tip off big lenders ? 

    Thanks TOI….you reach out to Millions…..I raised this Issue too on my blog on Thursday,January 8,2009…Check it out Below




    Now Two More Serious questions need to be answered in this continuing Satyam Saga !





    Also raised the worry on my blog on Friday,January 9,2009 that Larsen’s Fatal Investment in Satyam from December 23,2008 to January 6,2009 could be their lifting the same Promoter pledged shares sold by lenders

    Check it out on



    Larsen Jumps the Gun in Buying 4% into Satyam and sees Big Erosion of over 85% and over Rs 300 Crs inside just Two Days !…they must file an FIR against Satyam and it’s Chairman,Ramalinga Raju

    Larsen was probably ill advised to buy a 4% Stake in Satyam at undisclosed price…Definitely over Rs 100 asY.M. Deosthalee told Dow Jones Newswires by telephone that the company acquired the stake over ten days ending Tuesday through its L&T Capital arm.

    Larsen now holds close to 2.70 crore shares in Satyam at Investment cost of over probably  between Rs 350 crs to Rs 450 crs….On Wednesday,January 7,Satyam opened at Rs 175 but closed at Rs 40 after Ramalinga Raju’s Confession of a massive Fraud…Today Satyam has sunk even lower to Rs 20…Larsen’s holding in Satyam is worth just Rs 54 Crores inside days…It has lost over 85 % and @ over Rs 300 crs notionally inside two days !…it will have to mark the investment to market

    There is also the grave posssibility that L & T Capital may have picked up the same 4 % of Equity sold by the Lenders to Ramalinga Raju on his pledged shares…If this is so,then Ramalinga Raju may have awaited this sale at High Prices before releasing his Confession Letter on January 7,2009

    Larsen must not let Satyam and Ramalinga Raju get away with this ! 

    The Share Price of Larsen has also eroded by 15% to below Rs 700 in quick time