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Learning the tools and processes to detect and control corporate fraud

A large part of the Fraud Investigation and Control Knowledge Summit held in the national capital last week focused on the ground-level frauds committed by people in corporate India, and provided guidance on what to do in such situations, whether it is the Rs200 travel voucher frauds, or the bigger Rs200 crore accounting frauds, and the huge Satyam-sized multi-thousand crore rupees scams

In a way, it is symptomatic of all that is happening in India now with the Jan Lokpal issue, that a seminar on the subject of fraud and risk in the corporate world passes unnoticed by the mainstream media, largely because this is one subject that is seldom brought out, unless it is reported after the act and during the investigation and prosecution stage. Even then, whenever there is a large corporate scam with numbers that make political scams look like time-pass, there is always a closing of ranks and shutdown in communications, as well as a lack of information sharing kind of approach, while the players regroup.

To give one simple example, the annual budget for the IPL cricket business far exceeds the five-yearly budget for India's general elections. But IPL-related scams appear to vanish like the summer rain, leaving no trace, not even a hint. And it is no longer a question of sports journalism only; this is, like any other industry, a simple pure commercial enterprise. But is there any chance of sustained action on frauds here?

Another example is the global narcotics economy that exceeds in turnover the oil economy plus the transportation economy. The numbers themselves are mind-boggling. But when you refer to the historical facts of how colonial empires sent gunboats into China to ensure that the opium traffic continued in the name of free trade and democracy then you get an idea of how it is business as usual, but with far bigger numbers. Some of our biggest and best corporate houses owe their continued existence to this simple association going back centuries, but you will not see this being called a fraud or investigated.

In trillions of dollars and euros, and it's all hunky-dory, as long as you wear swish suits and can deliver articulate power-point presentations in impeccable English to a hall full of people from a wide assortment of disciplines, all there to learn more about investigation and control of fraud in the corporate world.

As I have said already, the numbers make political scams look like piggy-bank thefts, but the way of the world has been to always ignore these in the name of "free trade". It also has to do with the fact that within the global scenario, the larger frauds being played out are ostensibly to benefit stakeholders, or tax-saving methods often by unnamed entities, hiding behind tax havens globally

On the other hand, impeccable standards of personal integrity and adherence to a vast variety of laws, rules, statutes and edicts globally, not to forget mandatory and regulatory filings, are expected of those on the frontlines all the way down to the base of the pyramid. There is a dichotomy here that comes out loud and clear at summits and seminars like this one, especially with the younger and more aware managers who ask these questions directly, far more now than it was in an age before the advent of the internet.

But this seminar was about corporate fraud and risk management at the modern workplace, mainly corporate. As defined. Sitting in for two days in a conference room full of mainly young people from various fields-banking, auditing, F&A, HR, law, NGOs, tech forensics, the private and the public sectors, investigators, ex-cops and more, and networking with them offline during the refreshment breaks, one could generate a book on the subject of corporate scams if required. From the personal finance viewpoint, which is the focus of Moneylife, many salient features emerge, some of which will be discussed in a separate article.

As far as this seminar, organised by the Mumbai-based ITP publishing group, is concerned, full marks for the concept and delivery. It was overdue and many interesting aspects never discussed otherwise in the open, came up. Here are a few.

# Technology driven frauds: We listened to Ajay Kumar Dhir of Lanco Infratech and his refreshingly frank discourse on his experiences, as well as ongoing learning curve, with reference to electronic communications. Alok Gupta of Pyramid Cyber Security & Forensic walked us through some case studies as well as forecasts on where cyber security was headed, as well as some basic steps on how to counter issues.

# Accounting driven frauds: Suveer Khanna of KPMG Forensic brought out the global viewpoint of his company, with examples of how to profile as well as tackle real-life scenarios, but largely of the downstream smaller corporate fraud sort. On the other hand, a panel of people from companies as diverse as Microsoft, Alcatel-Lucent, Standard Chartered Bank, HSBC and ICICI were far more forthcoming on larger frauds pushed by the number crunchers variously.

# Other topics included whistleblower protection (still in a nascent stage in India), global corruption perceived with respect to India, in the context of sponsored benchmarking (as explained by Transparency International), and a very spirited discussion between a group of young lawyers on the legalities involved in corporate fraud and risk investigation. We also learned about aspects of HR and policies as well as best practices on what to do when fraudsters were caught, the benefits and downsides of going to the police, the issues of public perception and market-related aspects, and more.
In all, it wasn't as simple as setting traps, placing checks and balances, and then replacing the bad guys with the good guys. There are far deeper nuances of why these frauds happen, and more importantly, on what to do once things are detected.

The seminar was largely successful in what it set out to do, which was to provide participants and others with an idea of the tools and processes that could be used for and in case of detection of frauds. There was not enough attention, however, to the concept of pre-emptive steps and concepts of fraud prevention as an essential part of the holistic picture.

For example, some aspects of ATM fraud dealt with counterfeit notes and short delivery, which impacted the customer as well as the bank. Analysis of the ATM stuffing procedure reveals that, in India, a van goes to every ATM with huge bundles of currency notes and then the ATM is refilled, notes counted, recounted, handled, re-stuffed, by a variety of people at a variety of remote and secure locations, which leaves the process open to a wide range of possible frauds.

In most other countries, the ATM signals the central control room when it is running short of currency, at which point the van goes there, and simply replaces the existing cartridges with a sealed cartridge that has pre-counted and pre-checked currency notes in it. The almost depleted or empty cartridges are taken back to the secured area where they are handled under very controlled methods.

Likewise, the background check on employees is usually a tick-all-the-boxes-and-move-on kind of endeavour. More often than not, an unsecured email is sent to an HR department or college, and an equally unsecured email response is considered to be the foundation for a background check. How difficult is it to send a letter by registered post, a signed copy of the said email, and request the courtesy of a similar written response, even if it involves enclosing a reply-paid envelope or a pick-up from a reputed courier company?

However, there is not intention to detract from the value gained by many at the seminar. Also, it was visible that in the absence of the mainstream media, participants were more frank and open about their views and experiences. And, if their experiences are anything to go by, corporate fraud and risk investigation is only going to rise in the country, and very rapidly.

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p k

5 years ago

very informative article.
very typical example is ball and roller bearings.. in early 90's and late 80's, bearing dealers minted money..duty was very high,100 % ++. the "authorised" dealers got the bearings from china /taiwan at very low price , and sold with brand marking xxx germany/ sweden etc...margin was more than 300 % ++, many times in cash! 2or 3 of them were very powerful with links in middle east and far east..

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