Corporate frauds are unlawful, and they are usually done by the betrayal of trust by those who have a fiduciary responsibility with the corporation. The Satyam Scam is a classic example which covers the area of corporate fraud. This project will cover the every aspect and the entire scheme, i.e. the purpose for the fraud, and how the fraud was perpetrated. Also the project will be describing the efforts taken by various agencies to prevent such frauds in the future.

Fraud is an act that occurs in practically every industry. Corporate frauds are illegal and usually involve the violation of trust of those who have a fiduciary connection with the firm. Fraud is also described as those activities that aim to generate such misinformation in the sight of a third party that might be fatal to a corporation in the long term, as well as providing illicit benefits to the perpetrator. The firm will make every effort to combat fraud and to prevent all situations that might lead to fraudulent activity in the workplace.

It must also design methods and mechanisms for monitoring functionalities and detecting any unlawful or illegal activities within the system. Fraud can occur at the administrative level, which is referred to as "managerial fraud," or at the employee level, which is referred to as "fraud by employee association." The Satyam Scam, which occurred in India in 2002, is the subject of this paper. The paper provides an insight on to analyse the complexities, motives for committing such crimes, orders issued by various agencies in the case, and improvements in corporate governance as a result of the case.

SATYAM was a smart fraud. Deceptive reporting techniques, a lack of transparency, excessive interest in stock values, a lack of basic accounting regulations, insufficient independent directors, an ineffective audit committee, and other issues all led to the fraud. Satyam Computers used to be the centrepiece of the Indian IT sector, but it was brought to its knees in 2009 by its founders due to financial fraud. The Satyam crisis sparked a debate regarding the CEO's role in propelling a firm to new heights of success, as well as the CEO's relationship with the board of directors and key committees.

Consequences Of Fraudulent Financial Reporting

What is fraud?

Fraud is a major problem affecting people from all backgrounds of life and all areas of the economy. Fraud is a broad term that refers to a variety of illegal activities and behaviours involving intentional deceit or misrepresentation. According to the Association of Certified Fraud Examiners (ACFE), fraud is "a deceit or misrepresentation made by an individual or entity knowing that the deception may result in some illegal gain to the individual, entity, or other party."[1]

Fraud affects organisations of all shapes and sizes. Financial reporting fraud has occurred in a number of significant public corporations over the last few decades, causing upheaval in the capital markets, a loss of shareholder value, and, in some circumstances, the company's collapse.

Financial statement fraud is often committed by three types of businesspeople. Senior management (CEO and CFO), middle and lower-level management, and organisational criminals are among them. Accounting fraud is committed by CEOs and CFOs to hide genuine corporate performance, retain personal position and control, and keep personal income and wealth.[2]

Financial reporting fraud may have serious implications for a firm and its stakeholders, as well as public trust in the capital markets. Furthermore, fraud has a number of negative consequences for businesses, including financial, operational, and psychological consequences. While the financial loss caused by fraud is considerable, the overall impact of fraud on a company may be enormous. In reality, the damage to a company's reputation, goodwill, and customer relations can be severe.

When financial reporting is falsified, major repercussions follow. Because fraud may be committed by any person within an organisation or by individuals from the outside, it is critical to have a strong fraud management programme in place to protect your company's assets and image. As a result, the business must take the lead in preventing and detecting fake financial reporting.[3]

Recent corporate accounting scandals, and the ensuing demand for openness and honesty in reporting, have undoubtedly resulted in two dissimilar but natural results. For starters, forensic accounting skills have become increasingly important in deciphering the complex accounting manoeuvres that have clouded financial accounts. Second, public pressure for reform and subsequent regulatory action have changed the corporate governance (CG) landscape. As a result, a growing number of corporate executives and directors are subject to ethical and legal scrutiny. In reality, both of these movements share the purpose of resolving investors' worries about the financial reporting system's transparency.

Genesis of scandal at Satyam Computer Services Limited
Mr. Ramalinga Raju established Satyam Computer Services Limited in 1987. The business provided outsourcing services in both information technology and business processes. This was a Hyderabad-based corporation that grew to become a global brand, with a reputation for innovation, governance, and responsibility. It also provided outsourcing services for corporate processes. The corporation operated on a global scale, with offices in more than 55 countries and more than 30,000 workers serving more than 500 subsidiaries. A total of 150 firms were included in the Fortune 500. With efficiency and goodwill, the firm grew to become a worldwide IT behemoth, with a market capitalization of 2.1 billion dollars by 2008.[4]

Mr. Ramalinga Raju stepped down on January 9, 2009, and notified the board of directors by letter, confessing to years of accounting figure manipulation. Through this confession, it was revealed that the corporation owed approximately $ 1.04 billion in bank loans and cash that was supposed to be claimed was non-existent. In addition, the liabilities were assessed lower than the real value. SCSL inflated its income every quarter in order to match analyst expectations, culminating in a massive amount of fraud. Mr. Raju set up many bank accounts and utilised them to inflate the balance sheets with fictitious sums.

Mr. Raju fabricated bank accounts in order to inflate the balance sheet with fictitious funds. By claiming interest income from the fictitious bank accounts, he inflated his income statement. Mr. Raju further said that over the last five years, he created 6000 false pay accounts and took the money when the corporation deposited it. To exaggerate revenue, the company's worldwide head of internal audit established phoney customer identities and made fraudulent invoices in their names.

In addition, the company's worldwide head of internal audit faked board decisions and received financing unlawfully.[5] He decided to purchase MaytasProperties and Maytas Infra, believing that this was the only way to get out of the situation and mitigate the deception he had perpetrated. The transaction was designed such that the firms would be acquired solely on paper, with no real financial transaction, resulting in a balance of the sums previously recorded in the books of accounts. SCSL's board of directors decided and sanctioned the acquisition of enterprises without shareholder approval.

The issue arose once more when the purchase angered investors, resulting in a sharp drop in the company's stock price. SCSL was also the subject of a lawsuit, which resulted in a 55 percent drop in its stock on the NYSE. The mounting pressure was the last nail in Mr. Raju's coffin, and he admitted to manipulating books of accounts and committed fraud in front of the Securities Exchange Board of India. The government promptly created a new board of directors for the firm, and Mahindra eventually purchased 51 percent of SCSL shares, renaming it "Mahindra Satyam." As a result, it amalgamated with the Mahindra company and is now known as 'Tech Mahindra.'

The probable reason
On the one hand, obtaining high stock values would allow the promoters to enjoy benefits that would allow them to earn actual riches outside of the company, allowing them to extract money to acquire huge holdings in other companies. There might be a reason why Raju's family accumulates stock and then sells it when the time comes. The money obtained was utilised to buy thousands of acres of property across Andhra Pradesh in order to profit from the state's expanding real estate sector. It became a major issue since facts had to be doctored in order to keep reporting good profits for Satyam, which was expanding in size and scope. Every attempt to close the distance ended in failure. . The final factor was the sale of Maytas Infrastructure and Maytas Properties to Satyam for an estimated Rs. 7,800 crore.

Accountants And Auditors Play In Satyam Scam

Because the scam stayed unnoticed for such a long period, many people assume chartered accountants are engaged in the Satyam Scam, i.e. Price Waterhouse (hence referred to as PWC) India. The SFIO investigation also claimed that the accountants were careless in completing their statutory obligations and reporting requirements since they employed Satyam's tools instead of independent testing mechanisms.[6]

The accountants in this case not only failed to present a clear image to the public, but they also committed fraud by giving the corporation a clean chit and portraying the accuracy of the books of accounts. Satyam's situation demonstrates the flaws in managing and determining auditors' conduct. Regrettably, PWC has been overseeing the company's accounting for the past nine years and has yet to uncover such a massive fraud. Apart from auditors, a number of other variables contributed to the financial fraud, including independent directors, the institutional investor community, SEBI, retail investors, and professional investors, all of which have access to the company's models and extensive information.

Issue of law
The defendants were charged under several articles of the Indian Penal Code, including Sections 120 B[7], 406[8], 420[9], 467[10], 471[11], and 477 A[12], for breaking different income tax rules

Role Of SEBI And SAT

In 2014, SEBI ordered Mr. Ramalinga Raju and four others to be disqualified from trading in the markets for 14 years, as well as a sum of Rs. 1,849 crores in illegal earnings, plus interest. [13]With effect from the day on which Mr. Raju made such a confession concerning the fraud and manipulation of the books of accounts, interest was assessed at a rate of 12% per annum. The money, plus interest, was intended to be deposited within 45 days of the order's date. The (SEBI) has given Satyam Computer Services permission to choose a strategic investor to buy 51 percent of the firm through a global competitive bidding procedure, which resulted in Tech Mahindra purchasing Satyam Computer Services.[14]

The Securities Appellate Tribunal was constituted under Section 15 (K) of the Securities and Exchange Board of India Act, 1992, as a statutory entity. Its primary function is to handle appeals against SEBI or any adjudicating officer's orders made under the SEBI Act, as well as to exercise the jurisdiction, powers, and authority given on the Tribunal by or under this Act or any other legislation in effect at the time.[15]

It has restricted all PwC network firms from auditing publicly traded corporations and brokers[16]for a period of two years after being found guilty in the Satyam fraud. SEBI ruling stated that they were not following auditing norms and did not reveal such a large gap growing in Satyam's financial statements, and that PwC, along with the other primary players implicated in the largest corporate fraud, were deceptive.[17] Section 11 of the SEBI Act and the Prevention of Fraudulent and Unfair Trade Practices Act were used to issue the order against PwC. (UFTP). SEBI has the jurisdiction to issue orders in favour of investors under Section 11 of the SEBI Act.

Regulatory Cg Reforms In India And Lessons Learned At Satyam

The exposure of such a massive accounting fraud has caused a slew of issues in India. Reluctance and a drop in India's appeal for foreign investment in the IT services industry was the major and most destructive impact of the scandal, which was foreseen. Furthermore, Satyam's stock fell to its lowest point of 30 and lost 77 percent of its worth.[18] Such frauds and failures act as cautions to investors and the general public to be cautious before investing in almost any firm.

Satyam Computers Services Ltd's Corporate Governance Fails:

1. The Concept of Independent Auditors Fails:
   When the concept of corporate governance was first implemented, SEBI emphasised the role of independent directors in the presentation of financial figures to the government, claiming that independent directors would present a true and fair view of financial figures and participate more actively in the audit process of companies than traditional directors. However, in this case, this concept was a complete failure.
   
   The SEBI is exploring a number of recommendations, including requiring enhanced due diligence on deals and raising board members' personal liabilities. If present reform trends continue, shareholders will be able to sue corporate officials and directors more easily under the 1956 Companies Act. To safeguard shareholders, the SEBI is contemplating requiring publicly traded businesses to buy director and officer liability insurance.
    
2. Failure of the Audit Committee:
   The Satyam Computers Audit Committee played a little role in preventing financial distortion of facts.[19]In this scenario, another fundamental foundation of Corporate Governance has been broken. The SEBI has suggested that corporations be required to declare their balance sheet situations twice a year. Prior to Satyam, the requirements only required balance sheet positions to be disclosed once a year. Investors will have greater information on the soundness of a company's financial condition when balance sheets are reported more often. Increased disclosure frequency and detail will aid in providing a more comprehensive market check.
    
3. Failure of the CEO/role: CFO's:
   The concept of Corporate Governance states that the CEO/CFO of the company certifies the truthfulness and fairness of the company's financial statements, but in this case, the CEO/CFO of the company, Mr. Ramlinga Raju/ Srinivas Vadlamani, has certified the company's incorrect financial position.
    
4. Failure to include the true report on corporate governance compliance in the financial statements of the company: In the case of Satyam Computers, the Annual Report contained a report on corporate governance compliance, but almost none of the facts in that report were accurate in the real sense.

Failure of SEBI in timely detection of this Finance Scam: -The Security Exchange Board of India is the government's most powerful regulatory organisation, with complete authority to intervene in any company's financial affairs, including the presentation of financial figures and insider trading.

The value of Satyam Computers' stock has soared dramatically, yet SEBI has failed to discover or even detect any bad governance. As a result of all of this insider trading, the Company's promoters have gained millions of dollars by falsifying financial numbers, inflating the market value of the shares and selling them at those higher prices, resulting in the depreciation of the company's worth of the finances of ordinary individuals who have invested in Satyam Computers shares based on the company's financial statements.

Though the Indian corporate governance (subsequently referred to as ICG) took the necessary steps, the Federation of Indian Chambers of Commerce and Industry (hereinafter referred to as FICCI) furthermore made a notice discussing the problem and asserting that the scam was an exceptional situation and that investors should not be concerned about India's accounting standards and corporate governance.

The scandal also brought to India's attention a number of flaws in the ICG guidelines, including as non-disclosure of important data to stakeholders, insider trading, unethical behaviour, and false accounting. To address these issues in the ICG, the Confederation of Indian Industries established a task force, and the Ministry of Corporate Affairs (hereafter referred to as MCA) produced optional guidelines for Corporate Governance in 2009 based on the task force's recommendations. The National Association of Software and Services Companies also formed a Corporate Governance and Ethics Committee, which recommended changes to audit committees, shareholder rights, and whistleblower procedures.[20]

The previous corporate governance rules were also revised by SEBI. The Listing Agreement was also amended to guarantee that such fraudulent acts were not carried out. SEBI also passed the SEBI (Listing Obligation and Disclosure Regulation) (hence referred to as LODR), 2015, which applies to all public firms and establishes strict regulations and procedures for the disclosure of material events and financial statements.

The government also took essential steps by enacting the Companies Act of 2013 (hence referred to as Act), which places a strong emphasis on stakeholders' interests. Corporate fraud was likewise made a crime under the Act. It established explicit procedures for cost accountants, business secretaries, and auditors to follow when reporting fraud. It also established a system of checks and balances in the Act, assuring effective corporate governance and management in the country.

It also included a condition requiring the company's individual auditors to rotate every five years and auditing companies to rotate every ten years. Furthermore, when doing their tasks, accountants are required to report any type of fraud perpetrated by the organisation or anyone associated with it.

Conclusion
Recent corporate scams, as well as public demand for greater openness and honesty in reporting, have resulted in two consequences. For starters, forensic accounting abilities have become increasingly important in interpreting the complex accounting practises that have obscured financial accounts. Second, public pressure for reform, followed by regulatory action, has changed the Corporate Governance landscape throughout the world. In addition, the Corporate Governance framework needs to be first of all strengthened and then implemented in letter as well as in right spirit.

Even though corporate governance mechanisms cannot prevent unethical activity by top management completely, but they can at least act as a means of detecting such activity before it is too late. When an apple is rotten there is no cure, but at least the rotten apple can be removed before the infection spreads and infects the whole basket.[21]This is really what effective governance is about. The Satyam case is just another illustration of why improved corporate governance is required.

When it comes to appointing CEOs and top-level managers, all public firms must be cautious. These are the people that establish the tone for the firm; if there is corruption at the top, it will inevitably spread throughout the organisation. Separate the roles of CEO and Chairman of the Board of Directors. As a result, dividing the jobs helps to avoid situations like the one at Satyam. The Satyam founders' deception demonstrates how "the science of behaviour" is swayed in great part by human ego, ambition, and the desire for power, money, fame, and glory. To limit the risk of future accounting fraud, PwC should always involve a third party.

The presence of a third party raises the likelihood of error-free financial statements. In the absence of a third party, a client business can more easily fake its assets. Even while engaging a third party may take extra resources from an auditing company, it is ultimately in the auditors' best interests. The chance of failing to discover a client's accounting fraud is reduced when a third party is involved. In their job, auditors must adhere to the notion of professional scepticism.

Auditors must evaluate the information they get from their clients since the clients have an incentive to portray the data in the most advantageous light possible. By taking a suspicious stance to client-driven information and engaging with a third party, the auditors may have lessened the severity of the scam.

End-Notes:

1. ACFE, "Report to the Nation on Occupational Fraud and Abuse," The Association of Certified Fraud Examiners, 2010. www.acfe.com
2. D. L. Crumbley, L. E. Heitger and G. S. Smith, "Forensic and Investigative Accounting Chicago: CCH Incorporated," 2003.
3. C. E. Crutchley, M. R. H. Jensen and Marshall, "Climate for Scandal: Corporate Environments that Contribute to Accounting Fraud," The Financial Review, Vol. 42, No. 1, 2007, pp. 53-73.
4. Satyam Computer Services Ltd. (Merged), Economic times, https://economictimes.indiatimes.com/satyam-computer-services-ltd(merged)/infocompanyhistory/companyid-11407.cms.
5. S. Ramachadran, "Raju Brings Down Satyam, Shakes India," Asia Times Online Ltd., 2009. www.a.times.com
6. Madan Lal Bhasin, Creative Accounting Scam at Satyam Computer Limited: How the Fraud Story Unfolded?, https://www.scirp.org/journal/PaperInformation.aspx?PaperID=70827
7. 1[120B. Punishment of criminal conspiracy:
   
   1. Whoever is a party to a criminal conspiracy to commit an offence punishable with death, 2[imprisonment for life] or rigorous imprisonment for a term of two years or upwards, shall, where no express provision is made in this Code for the punishment of such a conspiracy, be punished in the same manner as if he had abetted such offence.
   2. Whoever is a party to a criminal conspiracy other than a criminal conspiracy to commit an offence punishable as aforesaid shall be punished with imprisonment of either description for a term not exceeding six months, or with fine or with both.]
8. 406. Punishment for criminal breach of trust.—Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.
9. 420. Cheating and dishonestly inducing delivery of property.—Whoever cheats and thereby dishonestly induces the person de­ceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.
10. 467. Forgery of valuable security, will, etc.—Whoever forges a document which purports to be a valuable security or a will, or an authority to adopt a son, or which purports to give authority to any person to make or transfer any valuable security, or to receive the principal, interest or dividends thereon, or to receive or deliver any money, movable property, or valuable security, or any document purporting to be an acquittance or receipt acknowledging the payment of money, or an acquittance or receipt for the delivery of any movable property or valuable security, shall be punished with 1[imprisonment for life], or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.
11. 471. Using as genuine a forged 1[document or electronic record].—Whoever fraudulently or dishonestly uses as genuine any 1[document or electronic record] which he knows or has reason to believe to be a forged 1[document or electronic record], shall be punished in the same manner as if he had forged such 1[document or electronic record].
12. [477A. Falsification of accounts
13. Satyam case: SEBI bans Raju and others for 14 years, https://www.thehindu.com/business/Industry/satyam-case-sebi-bans-raju-others-for-14-years/article6213750.ece
14. SEBI nod for Satyam to choose strategic investor, The Hindu, November 18, 2016
15. http://sat.gov.in/scripts/detailsat.asp?releaseId=E0000US1
16. Sebi bars Price Waterhouse: What is the firm\'s role in the Satyam scam?Hindustan Times, 11th January 2018
17. Satyam case: Price Waterhouse moves SAT against Sebi ban, Live mint, 17th January 2018
18. Scandal at Satyam: Truth, Lies and Corporate Governance,Wharton University of Pennsylvania, https://knowledge.wharton.upenn.edu/article/scandal-at-satyam-truth-lies-and-corporate-governance/
19. Maher, N. (211, April 6). http://www.internationalaccountingbulletin.com/news/pwc-to-pay-75m-for-satyam-audit-failures
20. Susmit Pushkar and Susanah Naushad,What changed in the legal landscape post-Satyam scam, https://www.moneycontrol.com/news/business/companies/what-changed-in-the-legal-landscape-post-satyam-scam-2480623.html.
21. Jim Solomon and Aris Solomon (2004), "Corporate Governance and Accountability", John Wiley & Sons Ltd, England, page 42