Corporate Fraud Schemes

Corporate fraud refers to actions undertaken by an entity or an individual which are done in an illegal or dishonest way and are premeditated to offer an edge to the organization or individual. Corporate fraud has the capability to affect an organization’s finances and reputation, as such, there is a need to develop means to prevent fraud before they occur. Organizations can utilize forensic accounting to investigate financial activities and identify fraudulent practices within organizations.  The main steps of financial forecast analysis include data collection, data preparation, data assessment, and reporting. This documentation will describe Satyam fraud and also attempt to demonstrate how forensic accounting can be utilized to prevent fraud.

The Satyam System is an international IT firm which is based in India. In 2009, Ramalingam Raju, Satyam’s CEO took charge of the board of improprieties which exaggerated the organization’s incomes and margins and documented a cash holding of about 1.04 billion dollars which did not exist (Balachandran, 2009). The Satyam fraud concerns corporate governance and duplicitous auditing procedures purportedly in connivance with chartered accountants and auditors (”Satyam scam: All you need to know about India’s biggest accounting fraud”, 2015).  As a result, the corporation distorted its accounts to financial regulators, stock exchanges and board. The Satyam fraud inflated operating profits, revenue, cash balances, and interest liabilities in order to show the company is in good financial health. This representation misled the shareholders and the market by lying about the organization’s financial health (”Satyam scam: All you need to know about India’s biggest accounting fraud”, 2015). India’s Central Bureau of investigation examined the case and determined that Ramalingam Raju was the one who spearheaded the fraud. The CEO also confessed to the fraud in a letter to the organization’s board of directors. A special CBI court found Ramalingam Raju, his two brothers, and seven other people guilty of the Satyam fraud case and sentenced them to seven years in jail.

 Satyam fraud was the biggest fraud case in India because approximately 94 percent of the profit and revenue was fictitious. The Satyam scandal tarnished the organization’s image and there were serious ramifications that emerged as a consequence. Perhaps the greatest impact was the plummeting of   Satyam’s shares, this meant that the investors lost approximately 2.2 billion dollars (Balachandran, 2016). Citibank froze Satyam’s thirty accounts pending further investigations. Tech Mahindra Limited merged Satyam Computer Service Limited, acquired all the outstanding stocks in the Hyderabad-based company in an all-stock business deal worth Rs 5,150 crore and subsequently developed a new organization called the Mahindra Satyam (Furtado, 2016). Satyam fraud highlighted the need for corporate governance. It describes the set of systems, procedures, and principles that are used to govern a company. They offer guidelines as to how the organizations can be controlled or directed such that it can meet its objective in a way which will add values of the organization and is also advantageous for all shareholders in the long-term (Furtado, 2016).

Corporate fraud is a serious concern that companies need to prepare for. Corporate fraud can have devastating implications on business operations and can also damage an organization’s reputation and employees’ morale aside from the clear financial damage. Companies can use the financial forensic investigation to detect fraud. Organizations can use forensic accounting to assess accounting processes and results and investigate whether or not they are legal (Reddy & Sebastin, 2012).  Forensic accounting will assess corporate financial activities in order to determine whether there are any malpractices. Financial forensic investigation is used to determine; how (the manner in which the discrepancy has occurred), where (at what point of the process chain has the discrepancy happened), what (is the discrepancy intentional or not), why (the reason or motive for divergence, particularly with regards to intentional deviation), and who (the entity or individual who is at fault). The main steps of financial forecast analysis include data collection, data preparation, data assessment and reporting (Dorrell & Gadawski, 2012). Financial analysis can also be used in risk assessment as well as prevention services in order to help organizations develop a culture of fraud awareness. If financial forensic investigations were employed at Satyam, then they might have been able to prevent the fraud case that destroyed their entire company. This is because forensic accounting would have been used to assess financial activates and established that the organization was fraudulently auditing procedures to illustrate that the company was in good financial health.

Teamwork and leadership are significant aspects of any business or corporation. Effective teamwork and leadership are significant aspects of financial forensic investigations. Leaders are tasked with coordinating the team tasked with forensic accounting and assigning individual roles to team members. In addition to this, Leaders should ensure that team members’ morale remains high and that members are motivated to perform well (Thorpe, 2016). Teamwork is key in financial forensic investigations since the combined productivity of the team is much greater than the sum of personal efforts. For example, the key steps of forensic accounting could be allocated to different team members. When assessing Satyam’s financial operations, the leader will allocate different duties to team members in data collection, data preparation, and data assessment. Once they are done, they would collaborate together as a team to compile a comprehensive report that would be presented to the board of directors.

Forensic accounting is an important tool in fraud prevention in many businesses. Financial forensic professionals are people who are able to utilize investigative skills to investigate a corporation’s financial activities for possible fraud (Reddy & Sebastin, 2012). In order for an established professional to continue enjoying long-term success, they should need to conduct continuous success in the financial field. This is important because they need to keep up with the latest financial trends and learn new techniques that they can use to identify possible fraud in organizations. I, therefore, believe that financial forensic professionals should conduct continuous research in the financial field in order to be well equipped to assess financial activities.Corporate fraud is one of the greatest threat to development and organizational success because it has the capability to affect an organization’s finances and reputation. This is demonstrated through the Satyam fraud in 2009. In this case, the business exaggerated the proceeds and margins and documented a cash holding of about 1.04 billion dollars which did not exist. This event tarnished their image and also resulted in plummeting of stocks. To prevent such an incident from happening again, the organization should implement corporate fraud prevention strategies. One effective strategy is forensic accounting. Organizations can use this approach to assess corporate financial activities in order to determine whether there are any malpractices. Financial forensic professionals should conduct continuous research in the financial field in order to ensure that they are well equipped to assess financial activities.