Data Manipulation is one of the most dreaded forms of corporate Crime. The situation is more prevalent in certain industries where there is a greater need to raise money or keep investors happy or where they need large amounts of money for investment or working capital purpose.
Data fabrication also called data fudging is used to show a rosy or gloomy picture in a business environment by misrepresenting the data. Here the company represents the data wrongly to justify its decision or strategy. In many of the cases this happen in a financial environment.
Indian Companies are not too Dumb
Satyam scandal is a reminder of how corporates show more revenue and fixed deposits to keep investors happy and make them buy company’s shares at higher prices whereas the promoters started selling the same over a period. The same was also used by Enron in USA. This is a wrong way of showing business growth when hardly any underlying growth is there. Company creates fictitious bills/salary slips to show the wrong numbers.
What starts as a simple task to hide/misrepresent certain items of a balance sheet becomes a full blown exercise with involvement from top management. In Satyam’s case, most of the money is diverted to purchase speculative assets like land through its subsidiary, MAYTAS. The moment market values of these assets were down, Satyam tried to merge the real estate company with parent software company with hardly any synergies and proper justification. That’s when the scandal broke out and came to limelight. This also brings to light the corporate governance issues in Indian context. On a lighter note, Satyam received Golden Peacock award for corporate governance in 2007 and earlier, before the scandal broke out.
Challenging Role of Auditors
In most of the cases, auditors were found out to act as hand-in-glove with company promoters in fabricating this data. Post Satyam scandal, many new initiatives had been taken by Institute of Chartered Accountants of India (ICAI), the national professional accounting body of India, to curtail the occurrences of misrepresentation of data. Audit firms started taking the details of deposits and loan facilities directly from the banks instead of relying on the company. They started scrutinizing the key documents with more intent and purpose. But these measures had its limitations to unearth the kind of new frauds which many companies are inculcating into. Only time will tell how the regulators and investors come up with new ways and tools to tackle this problem.