Raju survives the tiger, offers his shareholders as food instead

Just what exactly is the financial/accounting manipulation of Mr Ramalinga Raju?

Going by his confessional statement to the Board of Satyam Computer, what he has done over the years appears to be rather simple manipulation of revenues and earnings to show a superior performance than what was actually the case.

For this, he resorted to the time-tested practice of raising fictitious bills for services that were never rendered. Such bills will have to either reflect as outstanding dues from customers, which will add up to sundry debtors on the balance sheet.

Or, it has to be shown as realised, in which case, the cash or bank balance should increase correspondingly.

From his statement, it appears that he’s done both, inflate receivables and cash.

For instance, in the September quarter, Satyam inflated revenues by Rs 588 crore all of which went straight to the bottomline. Thus, operating profits were artificially boosted from the actual Rs 61 crore to Rs 649 crore.

About Rs 490 crore of this artificially inflated Rs 588 crore was added to receivables as conceded by Mr Raju himself.

The remaining Rs 98 crore appears to be a part of the Rs 5,040-crore cash hole in the balance sheet.

What beats understanding though is how Mr Raju managed to show a cash/bank balance of Rs 5,361 crore when all Satyam had was Rs 321 crore as of September 30, 2008.

Auditors generally insist on certification by banks of the balances held by them in the company’s account.

Did the auditors fail to do that? Did Mr Raju produce forged certificates? Or did he just manage to find funds for just one day to deposit into the account to get a certificate?

Besides the above, Satyam also showed interest earnings of Rs 376 crore that was fictitious. This is also a common strategy designed to boost earnings performance.

Finally, Mr Raju says he infused funds of Rs 1,230 crore into Satyam which is not reflected in its books as dues to him. In effect, Satyam has understated its liability.

Now, the interesting thing is that all these numbers related only to the second quarter ended September 30.

Mr Raju has said in his statement that he has been doing this for “several years”. So what is the extent of overstatement over the years then? That is the unknown part of the fraud.