Outsourcing entrepreneur admits giant accounting fraud

India’s business sector is reeling after revelations that the boss of outsourcing giant Satyam Computer Services has falsified the company’s accounts and inflated its profit for several years.

India’s business sector is reeling after revelations that the boss of outsourcing giant Satyam Computer Services has falsified the company’s accounts and inflated its profit for several years.

Satyam’s chairman Ramalinga Raju admitted the fraud in a four-page letter to the Bombay Stock Exchange. The company employs more than 50,000 people across 66 offices worldwide, including an Australian office.

The company has worked for NAB, Telstra, Qantas and Suncorp in Australia as well as global giants such as General Electric, General Motors, Nestle and the US Government.

Jens Butler, Principal Analyst at research firm Ovum, says how the scandal impacts on the company’s Australian clients remains unclear.

“The board has already set up a taskforce to assess the situation, but any contracts that are up for renewal in the near-term may be at risk of being handed to another provider.”

“Expect some instability, mixed messages and lots of governance talk to come out over the next few weeks, but it would be best to just sit tight and hope that key operational staff to not leave or get poached.”

Raju admitted yesterday that $1.4 billion in cash and bank loans the company listed as assets on its balance sheet last September did not actually exist.

Raju said in his letter that the fraud started off small but grew out of control.

“What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew,” he wrote.

“It was like riding a tiger, not knowing how to get off without being eaten.”

Pundits are already describing the scandal as India’s version of the Enron scandal that rocked the US business world in 2001.

RK Gupta, managing director at Taurus Asset Management in New Delhi, told Reuter that the fraud has “put a question mark on the entire corporate governance system in India”.

Bodhisatva Ganguli, editor of the Economic Times in Mumbai, told the ABC that the scandal could grow.

“If you were a betting man it is entirely likely that there are other scandals waiting to be unearthed.”

Related story:

• How Bernard Madoff fooled the world’s banks, investors and high profile rich: A scammer’s guide