The founder of Satyam Computer Services Ltd, Ramalinga Raju, has been accused of inflating the number of people who work for the big Indian outsourcer by 13,000 to siphon off their phony wages.

The company is supposed to have 53,000 people, less 2,000 who left recently. Authorities claim it never had more than 40,000.

In a letter to the Satyam board a couple of weeks ago, Raju admitted to inflating the publicly held company's profits for years and making up the billion dollars it supposedly had in the bank. The Wall Street Journal says forged documents from at least four major banks including Citigroup, one of Satyam's major customers, were used in the scam.

But the New York Times says Raju "skimmed huge amounts of cash from the company" - perhaps all of the billion dollars - "rather than padding its books as he has claimed," quoting a person involved in the investigation. Raju reportedly relied on "hundreds of companies to divert money from Satyam."

He was skimming about $4 million a month, according to the Wall Street Journal, and depositing the money in a bank account held by his mother and one of his brothers, Suryanarayana Raju, allegedly to buy thousands of acres of land.

The accusations were made at a hearing Thursday; the prosecutor offered no evidence in open court.

Raju, his brother, Rama Raju, Satyam's managing director, and its CFO have been cooling their heels in jail answering questions and the court sent them back for more.

Already charged with forgery, cheating and breach of trust, Raju denies the new allegations, claiming he never profited from the fraud and that no money was diverted.

Meanwhile, State Farm Insurance Company, the Fortune 500 giant, has canceled its long-standing contract with the company.

The American insurer, believed to be one of Satyam's top 10 customers, is its first known loss.

State Farm said it bolted because it was unsure Satyam had a future.

The value of the State Farm contract is unknown. It could reportedly run to $50 million. It is also unclear what will happen to the 900 Satyam employees dedicated to the State Farm account, including the 400 working in the US on H1-B and L1 visas.

Meanwhile, Satyam has denied that Australia's telecommunications mainstay Telstra has also cut the cord.

Satyam, which has been working round-the-clock trying to retain accounts and keep employees focused, claims "well over 90% of our clients have committed to continuing."

It remains to be seen whether that statement proves to be true.

Reuters reports that at least some of Satyam's remaining clients want a contingency plan in case things don't stabilize in the next 90 days.

The company is currently trying to round up enough money just to survive, pushing to get the $347 million the Indian government figures it's owned in receivables and negotiating with banks for operating capital.

The government itself has refused to bail the company out.

If Satyam fails, a third of the Fortune 500, among others, face serious exposure especially if they contracted out mission-critical operations to the rogue company. They can't just wave a magic wand and move them elsewhere, even in-house. Unfortunately much depends on Satyam's record keeping and documentation. It could be a nightmare and the wisdom of outsourcing, for all its cost-savings charms, questioned.

Customers may take heart that there is reportedly interest in acquiring Satyam, at least according to one of its new government-imposed board members.

Oh, by the way, Satyam's fired ex-auditor PricewaterhouseCoopers finally had something to say. Coming late to the party, it claimed it relied on information from Satyam's management for the last eight years and as a result its assessments of the company "may be rendered inaccurate and unreliable." Legal action against it and individual partners is likely.

Satyam, which is also looking for a new CEO and CFO, has hired Deloitte and KPMG to put its books in order. It is believed it will take at least six weeks to set the record straight.