The former management of scam-hit Satyam Computer Services had kept loopholes in its accounting software and left passwords unsecured to facilitate fraud, the Serious Fraud Investigation Office (SFIO), which is probing the scandal, has told the government. The software system for managing companys financial accounting functions was deliberately made very complex for inflating profits, the SFIO said in its report.
The report said different departments of the company were not integrated electronically and the management overlooked this weakness to dupe investors and other stakeholders.
The invoice management system of Satyam had a weak password protection, making the system vulnerable to misuse. Therefore, fake invoices could be created by unauthorised users. SFIO has also found that in order to balance the collections against these fictitious invoices, they were first shown as receipts in the current account maintained with the Bank of Baroda, New York Branch and subsequently they were shown to be transferred to other bank accounts as fixed deposits.
Against these fixed deposits, the promoters were regularly generating fake quarterly balance confirmation letters showing the amounts of fixed deposits and the interest accrued on them. These forged current account balance statements and confirmation letters were fed into Satyams accounting software Oracle Financials for the quarterly audits of the company.
Soon, three other bank accounts in India, Citi Bank, HDFC Bank and HSBC were also used for this purpose of falsification of current account balances.
There were no validation checks for a number of invoices. The SFIO report points towards a serious control deficiency in the system that facilitated entering of unauthorised transactions, making unauthorised payments and non-detection of unauthorised activities.
No internal passwords were required to access the database of Oracle Financials, which increased the possibility of unauthorised changes to the programmes.
The report says Price Waterhouse, which audited Satyams accounting software, had pointed out to the companys audit committee that the weakness in the system may result in mis-statement of the annual or interim financial statements. The report further says that the audit committee chairman denied receiving such an input.