7,561 fake bills = Rs 5,117 cr ‘sales’

7,561 fake invoices. Rs 5,117 crore of fake revenues. Rs 3,983 crore of fake cash.

That, in a nutshell, is the scam Byrraju Ramalinga Raju, the founder of Satyam Computer Services, perpetrated on the company in more than five-and-a-half years between April 2003 and December 2008.

And how did he do it? By using the IT skills inhouse and tampering with the invoice management system (IMS) of the company, a software module that was internally developed.

The startling details are revealed in the Central Bureau of Investigation’s (CBI) charge-sheet on April 7 with the 14th Additional Chief Metropolitan Magistrate in Hyderabad.

The magistrate took it on record on April 9 and called all the 9 accused in the case including Raju on April 15.

The CBI sleuths have found that there were about 74,625 invoices generated in the IMS between April 2003 and December 2008.

But how were the fake invoices created? In the IMS system, there is a mandatory field earmarked ‘Invoice Field Status’. Unless this is filled, processing of the order does not go ahead.

So what Raju & Co did was to use two alphabets ‘H’ or ‘S’ in the Invoice Field Status to process the entry. The invoices thus created were hidden from the view of those who ran the finance units.

About 7,561 invoices out of 74,625 had ‘S’ marked as their invoice field status.

Out of this, 6,603 were also found on the company’s Oracle Financials software system, to make it seem like these were actual sales. Entries into this system get reflected straight in the profit & loss statement. The balance 958 remained in the invoice state, and therefore within the IMS system — they were not keyed into the Oracle enterpriseware.

The total revenues shown against these 7,561 fake invoices were Rs 5,117 crore. Of this, sales through the ‘reconciled’ 6,603 invoices were about Rs 4,746 crore.

The CBI chargesheet said after conducting several validations it was established that these 7,561 invoices were false and business worth Rs 5,117 crore taken into the company’s books was fake. It has also given detailed description of the nature of fudging that happened in the books of Satyam.

After generating fake invoices in IMS, a senior manager of the finance department named Srisailam, who is currently under judicial custody, entered the 6,603 fake invoices into Oracle Financials with the objective of inflating sales by Rs 4,746 crore.
By reconciling the receipts of these invoices, the cash balances in the company’s account were shown at Rs 3,983 crore.

Interestingly, this is more or less the story narrated by Raju in his confession letter. However, sources said the CBI had gone by the confession in the initial investigation and had to scientifically establish the details mentioned by Raju in his letter.

The CBI has also found that the sales were inflated every quarter and the average inflation in sales was about 18 %.

The key puzzle the CBI was trying to solve was also about the claims of Raju infusing Rs 1,230 crore into the company.

According to the chargesheet, about Rs 1,425 crore out of Rs 1,744 crore loans obtained from non-banking finance companies were transferred to the bank accounts of Satyam by 37 entities as loans between November 17, 2006, and October 30, 2008, to meet the expenses of the company.

Of this amount, Rs 194 crore was returned by the company between October and November 2008 to 15 out of the 37 companies.

That left an outstanding liability of Rs 1,231 crore —- the sum Raju says he infused into the company.

Interestingly, the chargesheet is also of the view that Satyam employees remained underutilised.

For instance, the utilisation level shown in the latest investor update by the company is about 74.88% for offshore employees . However, the actual utilisation was 62.02%.

“This clearly shows that the bench strength was as high as 40% in the offshore category. Further, as a result of underutilisation, the company was forced to pay salaries to associates without jobs on hand, which increased the burden on company’s finances. Even in the onshore category, the bench strength was around 5% (of total staff),” the chargesheet said.