Satyam inflated employee figures to siphon cash

Satyam inflated employee numbers to siphon out funds from the company, a prosecutor told an Indian court on Thursday.

A prosecutor told a court in Hyderabad on Thursday that Satyam Computer Services had only 40,000 staff, rather than the approximately 53,000 staff the company has claimed.

Salaries of the fictitious employees were siphoned out of the company every month, the prosecutor said, while asking for an extension of the custody of founder B. Ramalinga Raju and other former Satyam executives.

The allegations in the court come even as Satyam's board meets in Hyderabad in a bid to reassure customers that the situation at scandal-ridden company is under control.

Raju had stated earlier this month that the company's profits were inflated for several years. Investigators have however come to believe that there may have been profits but they were allegedly siphoned out of the company.

Prosecutors in court on Thursday alleged a web of fictitious transactions, land purchases and forged bank statements by Satyam's former management. Raju's lawyer has refuted the allegations.

The company's board is meeting for the third time on Thursday and Friday. Analysts have said that the company risked losing customers if it did not quickly install new management and reassure clients about measures to improve its liquidity position and pay salaries.

Customers want reassurance that Satyam will continue as an operating concern and also be able to retain the employees working on their projects, said Siddharth Pai, a partner at outsourcing consultancy firm, Technology Partners International.

The board, which was appointed by the Indian government, said earlier that banks would not lend money to the company unless the company's accounts were restated. The board has appointed two accounting firms to restate the accounts.

The board is also expected to finalize at this week's meeting the selection of a CEO and a chief financial officer.

Board members have said that they would work on speeding up collections so that money comes into the company more quickly.

The board has also not ruled out selling Satyam, stating that there were local and international bidders, but the Indian government has said it has no such plans at this point. The fluidity of the situation may scare away customers, analysts said.

State Farm Insurance in the U.S. had terminated its technology outsourcing contract with the company, and some others are looking for alternatives among other Indian outsourcers, Sudin Apte, analyst at Forrester Research, said.

However, moving a supplier is not a trivial task, Pai said. Customers would have to stop the work at Satyam, and then move it to another supplier, which could take a lot of time and expense, he said. Once the work is moved to another supplier, stabilizing operations can take years, he added.

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