September 29, 2010 10:49 pm

Satyam accounts underline scam woe

Satyam Computer Services, the company at the centre of India’s largest corporate scandal, has released its first audited accounts since the scam was revealed in January last year.

It revealed financial irregularities totalling Rs78.5bn ($1.7bn) – nearly double the amount previously known.

The company, which has since been taken over by India’s Mahindra Group and renamed Mahindra Satyam, is recovering from the scandal after severe downsizing.

Satyam also said on Wednesday that the US Securities and Exchange Commission was considering filing a civil suit against the company. Satyam already faces a separate $68m shareholders’ lawsuit underway in New York.

“The division [of enforcement at the SEC] had tentatively concluded that it would recommend to the commissioners of the SEC that it files a civil suit against the company, alleging fraud and other violations,” the notes to the accounts said, adding that no decision had yet been taken by the SEC.

The notes said the auditors had found the possible “diversion” of $41m from an American Depositary Share issue on the New York Stock Exchange in 2001.

The release of the accounts follows a forensic audit by Deloitte on behalf of Mahindra.

B. Ramalinga Raju, the company’s former chairman, threw India’s corporate sector into turmoil on January 7 last year when he confessed in a letter to his board that he had been fixing the company’s accounts for more than six years, including inventing a cash balance of $1bn.

Fearing that the scandal could lead to a meltdown of India’s outsourcing sector the government temporarily took over management of Satyam. The new managers auctioned the company, with the Mahindra Group, one of the country’s most respected conglomerates, taking over and installing new management.

The accounts show the scandal has taken a heavy toll on Satyam, once one of India’s top five IT companies. It made a net loss in the financial year to March 2009 of Rs81.77bn, mainly on account of the financial irregularities. This narrowed to Rs1.25bn in the year to March 2010.

Revenue during the two-year period shrank from Rs88.13bn to Rs54.81bn.

The company said staff numbers have been reduced almost by half from an original 50,000 employees.

The notes accompanying the financial results ran to 25 pages and warned that the auditors had been unable to piece together the whole story of the company, as there was evidence that documents had been destroyed.

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