Riding the tiger of financial statement fraud

Former Satyam chairman Ramalinga Raju declared in relation to the IT services company’s fraudulently inflated revenues and profits that it “was like riding a tiger, not knowing how to get off without being eaten”. Keith Williamson, a forensic accountant and managing director at Alvarez & Marsal, examines some recent financial statement fraud scandals, considers whether accounting fraudsters have learned new ways of riding the tiger, and discusses how those seeking to prevent and detect their activities can cause them to topple.

Keith Williamson (+44 20 7715 5218, kwilliamson@ alvarezandmarsal.com) is a managing director, Global Forensic and Dispute Services, Alvarez & Marsal, London.

Recent cases

Satyam

In 2011, India-based Satyam Computer Services Ltd was charged by the US Securities and Exchange Commission with fraudulently overstating the company’s revenue, income and cash balances by more than US$1bn over five years. The SEC claims that Satyam’s former senior managers perpetrated a scheme whereby more than 6,000 fictitious invoices were created and recorded in Satyam’s general ledger and financial statements. False bank statements were allegedly created that supported payment of the fictitious invoices, and also concealed expense payments that had been made but not entered into the general ledger.