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.
--
CA Ramachandran Mahadevan,M.Com.,F.C.A.,
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