Corporate Fraud: A Case of Satyam Computers Ltd.


In the contemporary times, corporate fraud is becoming a significant challenge within most companies across the world. With the escalating cases of fraudulence within organizations, it is evident that the challenge of corporate fraud is increasing, not only in frequency, but also in severity.

In most corporate cases, fraudulent activities target financial reports, thus contributing to financial losses. In circumstances of losses arising from fraudulent activities, investors among other stakeholders lose confidence in the affected company. However, with the increment in the rate of corporate fraud, people tend to question the effectiveness of punitive measures implemented by different governments to curb fraudulent activities in both public and private companies.

Corporate fraud is rampant in almost every country across the world (Bhasin, 2013). In addition, given that it takes time to unveil a fraud, it means that many fraudulence cases are currently underway and they will be detected with time. In an attempt to review the concept of corporate fraud, this paper will focus on the case of Satyam Computers.

Fraud is a widespread issue, which bedevils organizations across the world. Most scholars agree that fraud occurs under circumstances in which an individual or several people make intentional misrepresentation or deception for selfish gain or for the benefit of a third party at the expense of the company and stakeholders.

Such misrepresentations and deceptions attract criminal liability to the involved parties. Despite the fact that both the management and employees can participate in fraudulent activities, professionals recommend the implementation of efficient controls and procedures to detect fraud (Doody, 2009). Fraud contributes to adverse economic outcomes that affect companies and stakeholders. Such sentiments have been illustrated through Satyam, which was an Indian company that collapsed in 2009, despite its prime performance in the financial periods between 2007 and 2009.

History of the company

Toward the end of the 1980s, an Indian investor, Ramalinga Raju, embarked on investing in an IT company. The company was incorporated in India and it had its headquarters in Hyderabad. Unlike most companies at the initial stage, Satyam started with a workforce capacity of 20 employees and this number expanded over time due to the rapid expansion of the company. Furthermore, unlike the typical IT companies, Satyam ventured into outsourcing its services both at home and across the world.

The beginning of 21st century marked a significant phase of growth and expansion for Satyam. At this time, most countries across the world had started embracing the notion of e-commerce (GAP, 2014). E-commerce created a need for the implementation of sophisticated IT services and methodologies.

As an established business in the field of IT, Satyam moved in to fill the gap, especially in the Indian market. However, the company had also ventured into the international market, which was more competitive as compared to the domestic market in India. However, the management of Satyam focused on diversifying growth strategies of the company to counter the high rate of competition in the international market (GAP, 2014).

The expansion of the IT industry across the universe contributed to Satyam’s expansion of client base with the company providing services to approximately 300 customers. The company’s expansion was characterized by an increment in the number of employees from 20 employees in 1987 to over 13,000 workers in 2003.

Furthermore, the company’s rate of growth per year was approximated to be 6% with the firm generating sales of approximately $470 million by the end of the first quarter of 2008. An increment in sales contributed to the increment in the price of the company’s stock with shares going for approximately 526 Indian Rupees per share by the end of 2009 financial year (GAP, 2014).

With a compound rate of growth approximated to be 40% within five years (2003-2009), Satyam contributed to the growth of the value of shareholders to significant extents. Although Satyam’s escalated performance and incomes characterized the company’s rate of growth, the intensified incomes did not reflect the company’s actual image to the public and shareholders. However, the company’s downward trend started late in 2008 after it depicted a series of cyber breaches, while working with the World Bank (GAP, 2014).

Type and reasons for fraud

According to Doody (2009), internal frauds can take the form of corruption, misappropriation of assets, and presentation of fraudulent statements. An employee or management can misappropriate both liquid and fixed assets of the company. In such circumstances, the culprits may move further to alter financial or non-financial statements to cover the misappropriation and move further to presenting the altered statements to the company’s board of directors. In other instances, the management may be involved in conflicts of interest and bribery, especially during the recruitment process (Doody, 2009).

For Satyam, the scandal not only involved an executive officer, but also it entailed misrepresentation of statements. Through a memo to the company’s directors, the company’s founder and CEO, Ramalinga Raju, disclosed to have presented false statements in relation to the company’s assets.

Through the CEO, directors learned that the company did not possess liquid assets valued at $1 billion as indicated in the financial records (GAP, 2014). The CEO succeeded in highlighting the high value of Satyam by overstating the majority of the liquid assets that included cash and loans from banks. In a bid to strike a balance between the assets and liabilities, Raju understated the value of the company’s liabilities on its statement of financial position (balance sheet).

However, Raju worked together with the company’s head auditor to facilitate fraudulent activities through various techniques. Using personal computers, “Raju manipulated the company’s bank accounts, thus leading to the inflation of the balance sheet with non-existent balances…he altered the company’s statements of incomes by including interests claimed against deceptive bank accounts” (Bhasin, 2013, p. 30).

In addition, Raju participated in the misappropriation of company’s assets through misappropriating the company’s cash (GAP, 2014). The misappropriations occurred through the creation of deceptive salaries’ accounts and withdrawing cash from the accounts to cover some gaps of the company and personal use. The head auditor participated in the fraudulent activities by creating accounts of non-existent customers and assigning invoices against the fake accounts.

The illusory accounts of the company’s clients and invoices contributed to the escalated revenues of the company. Further investigations by the company’s directors indicated that Raju and Satyam’s head auditor failed to disclose the balance sheet funds that the company raised through deposits from clients in the United States (Ahmad, Malawat, Kocha & Roy, 2010).

From the analysis, it is evident that Satyam’s CEO and head auditor participated in the three forms of fraud and highlighted by CIMA. For the misappropriation of assets, the two parties, viz. CEO and the head auditor, misappropriated cash collected through deposits and obtaining cash from the company through deceptive salary accounts. For the fraudulent statements, the two altered both statements of incomes and that of the company’s financial position by including inflated figures. On corruption, the auditor used illegal means to obtain illegal credit funds for Satyam (Doody, 2009).

From an interview with the company’s directors, Raju disclosed that he engaged in fraudulent activities to cover the small losses of the company. However, the gap between the actual figures and the reported amounts widened with time to the point that inflating figures was no longer a solution. Although Raju denied using the company’s funds for his benefit and that of his family and relatives, one can question the intentions for not disclosing some of the company’s funds in the company’s financial records.

Apart from covering the losses of the company, other factors contributed to the fraudulent activities (Bhasin, 2013). First, Raju could have been driven by the motive to maintain the company’s fame through its outstanding performance in the corporate world. At this time, the company enjoyed high-ranking status, especially in the stocks market across the world.

However, disclosing the poor performance would undermine the company’s image that members of the public had perceived concerning Satyam and its performance. Moreover, misrepresenting statements of the company entailed the presentation of false information, thus contributing to the company enjoying a status that it does not deserve.

The move by Satyam’s CEO and the head auditor reveals that the two were driven by greed for prestige, success, and revenues against stiff competition that had adverse effects on Satyam. However, success obtained through the misrepresentation of the company’s reports entails the misappropriation of resources to fulfill personal needs for selfish gains at the expense of the company.

The role of internal auditors entails the prevention of fraudulent activities in a company. Auditors are charged with the role of implementing checks and controls in addition to verifying financial statements prior to presentation to the directors and members of the public. In such a case, the auditor looks for loopholes that signify the prevalence of fraudulent activities reflected in the financial statements.

For Satyam, the CEO participated in fraudulent activities for many years as he was motivated by the company’s head internal auditor. Moreover, the head internal auditor participated in manipulating financial records, as opposed to disclosing the CEO’s fraudulent moves (GAP, 2014).

Furthermore, the external community of stakeholders that included external auditors, investors, and implementers of accounting principles and standards failed to detect and disclose malfeasance practices, despite having comprehensive information concerning Satyam’s deals. For example, GAP (2014) discloses that the World Bank failed to debar Satyam following a series of breaches by the company.

The World Bank continued with its businesses with Satyam without informing potential institutions such as the United Nations that looked forward into contracts with the company. Finally, Satyam’s CEO took advantage of the company’s weak structure of administration and the incompetent board of directors to carry on with his fraudulent activities (GAP, 2014).

Impact of fraud on the organization and other stakeholders

Fraudulent activities affect an organization and its stakeholders significantly. First, fraud ruins reputation of both the company and stakeholders. For the case of Satyam, the scandal exposed weaknesses of the company’s structure of corporate governance, thus undermining the its prior image (GAP, 2014)

For example, unprofessional conduct of the head internal auditor is an indication of an inappropriate system of recruitment compounded with corruption amongst the top management team. In cases, employees hired through corruption continue with unprofessional practices after joining a company. With such a trend, unprofessionalism becomes part of a company’s culture as it trickles down from the top management to the least levels of workforce.

Following Raju’s confession, most clients and creditors terminated their contracts with Satyam. For example, the World Bank barred Satyam and blocked operations of contractors who worked directly with Satyam. Credit companies such as Sussie terminated their credit coverage of Satyam.

Furthermore, rewards organizations revoked awards given to the company, and this move that contributed to the ruining of the company’s image. For the employees, the majority of them were retrenched because Satyam could not cater for its wage bill. In such a situation, potential employers hardly hire employees from fraudulent companies in fear of introducing the culture of fraud in the new organization (GAP, 2014).

In addition, fraud contributes to the misrepresentation of financial statements through highlighting inaccurate figures (Doody, 2009). For Satyam, the misrepresentation of the company’s records contributed to the board of directors making inappropriate decisions up to a point at which losses had escalated beyond the available resources. In such a circumstance, potential investors channel their funds to other companies, whereas the current ones sell their shares and leave the company.

For Satyam, shareholders lost their funds that had been invested in the company following a rapid decline in the prices of Satyam’s shares from approximately 544 Indian rupees in 2008 to 11 rupees in 2009. However, the decline in the price of shares happened in the stocks markets across the world, thus leaving shareholders in turmoil after losing their funds. Apart from losing their finances, Satyam’s shareholders lost their ownership and control of the company. The new board of directors focused on selling the company as it had lost its worth and significance.

Although shareholders’ funds were lost over a long period, the company’s CEO managed to alter the value of the company’s assets to the upper limits to avoid a fall in price of Satyam’s stocks. However, the move by the company exposed inefficiencies of the government and professional bodies of accounting.

The event forced the government to participate in investigations by appointing new directors to salvage Satyam after the crisis (GAP, 2014). Following the investigations, most Satyam’s top managers including Raju were arrested by the government of India and charged with fraud-a criminal offense.

On learning of their disadvantages, clients, especially bankers and employees, sued Satyam for both criminal and civil liabilities. On the part of the government, Satyam’s scandal undermined the image of the IT-service industry across India, thus discouraging international investors (GAP, 2014).

The accounting profession and professionals were also affected by the Satyam’s fraud to significant extents. For example, following the disclosure of malfeasance by Raju, the government scrutinized an international body of professional accounts, viz. PricewaterhouseCoopers. The scrutiny contributed to the suspension of PwC’s license of operations. The move to revoke PwC’s license highlighted the presence of loopholes in the standards of accounting implemented at that time (Ahmad et al., 2010).

Most countries across the world including India responded by adopting additional standards, such as SAS 99, which addresses considerations related to fraud in financial statements and the Sarbanes-Oxley Act that was passed mid-2002 as well as the establishment of additional bodies of accounting professionals (Ahmad et al., 2010).

Was the activity illegal, unethical or both?

Satyam’s fraud entailed unethical and illegal practices facilitated by the company’s CEO and head internal auditor. From the illegal perspective, Raju and the company’s auditor violated their fiduciary duties bestowed to them by the directors of Satyam. For example, in both instances, Raju and his partner failed to adhere to the duty of care and negligence through overlooking matters that contributed to the company making losses.

In addition, they resorted to manipulating accounts of the company to cover the losses and this aspect contributed to negligence on the part of the auditor (Ahmad et al., 2010). Standards of accounting and professional bodies highlight the role of auditors as to verify a company’s books of records, processes, and accounts and implement controls to detect and deter fraud. For Satyam, the head auditor did not adhere to his roles; on the contrary, he participated in fraudulent activities by helping the CEO in manipulating Satyam’s accounts.

Moreover, Raju and his partner violated the duty of disclosure and loyalty to the company and its shareholders. Through the manipulation of the company’s accounts and inflating the value of the company’s assets, Raju and the auditor presented statement that did not reflect the true value of Satyam to the shareholders.

In such a case, the loyalty of the two was questionable by failing to serve the company and shareholders according to their roles as stipulated by the company. Furthermore, one can question their loyalty for their failure to disclose or record some of the company’s funds, especially deposits collected across the United States. The need to reflect wrong financial position of the company can be attributed to the CEO’s greed and desire to maintain his prestige as the head of a performing company contrary to the actual situation.

The behavior depicted by both the CEO and the head auditor depicts greed that contributed to the negligence of fiduciary duties and responsibilities. Despite the fact that the CEO was not in a position to counter the escalated completion in the industry, he sought to impress potential shareholders so that they can buy more shares and thus keep the company afloat.

Furthermore, Raju’s activities disclosed unethical and immoral standards implemented by the executive management as they aimed at improving the company’s performance by increasing revenues without scrutinizing ways in which such revenues were generated.


The increment in the cases of corporate fraud has pushed investors and members of the public to demand honesty, accountability, and transparency in communicating financial performance of different organizations. For Satyam, the company’s scandal affected an array of stakeholders and attracted the attention of interest groups.

Apart from damaging the company’s image, the scandal ruined the image of the entire IT-service industry across India. Furthermore, employees were not spared as they lost their jobs, whereas shareholders lost their finances, which had been invested in the company. Although Raju and the head auditor were liable for what happened, the company’s culture that tolerated unethical standards is largely to blame.


Ahmad, T., Malawat, T., Kocha, Y., & Roy, A. (2010). Satyam Scam in the Contemporary Corporate World: A Case Study in Indian Perspective. Web.

Bhasin, M. (2013). Corporate accounting scandal at Satyam: a case study of India’s Enron. European Journal of Business and Social Sciences, 1(12), 25 – 47. Web.

Doody, H. (2009). CIMA: Corporate Fraud. Web.

GAP: Satyam Scandal. 2014. Web.

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