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Forensic Accounting and Fraud Prevention
Forensic Accounting and Fraud Prevention

Forensic Accounting and Fraud Prevention - Description

By CA K RAGHU PAST PRESIDENT INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA Introduction A specialized field of accountancy Application of Financial Skills and investigative mentality Investigating fraud and analyzing financial information to be used for tracking and collection of for ID: 534091 Download Presentation


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Forensic Accounting and Fraud Prevention





A specialized field of accountancy

Application of Financial Skills and investigative mentality Investigating fraud and analyzing financial information to be used for tracking and collection of forensic evidence

Focuses on Detection of Financial Frauds

Encompasses Accounting, Investigative accounting, investigative audit and litigation support

Mixture of Accounting, Finance, Law, Computerization, Ethics and Criminology


Need for Forensic Accounting

Forensic Accounting ensures the integrity and transparency of Financial Statements.

It helps in formulating and establishing a comprehensive corporate governance policy.It has been gaining huge importance due to the increasing number of frauds and scams which are taking place in the corporate world.


Major Scams and Frauds in the Recent Years

Scams and Frauds



Suffered / Amount involved in Fraud

Waste Management



$100 Million

Enron Scam2001$74 BillionWorldCom Scam2002$180 BillionTyco Scam2002$150 MillionFreddie Mac Scam2003$100 MillionAIG Scam2005$3.9 BillionBernie Madoff Scam2008$65 Billion

Major Scams and Frauds which took place globally in the recent years :Slide5

Major Scams and Frauds in the Recent Years

Scams and Frauds



Suffered / Amount involved in Fraud (Rs.)


Mehta Securities Market Scam


5,000 Crores

Fodders Scam1992950 CroresThe UTI Scam 20014,800 CroresUP Food Grains Scam200335,000 CroresSatyam Scam200810,000 CroresThe 2G Spectrum Distribution Scam20081,75,000 CroresSahara India Pariwar Investor Fraud Scam



CroresCoalgate Scam20121,85,600 CroresSarada group Financial Scam201320,000 – 30,000 Crores

Major Scams and Frauds in India in the recent years :Slide6

Types of Frauds

Bank frauds Corporate frauds

Insurance fraudsHealth Care FraudsCyber frauds Securities fraudsConsumer fraudsSlide7

Cyber Frauds

Cyber Attacks have been a major threat over the recent years due to Computerization of Business operations.

Following are some of the Cyber threats :Malware Attacks such as Viruses, Worms and Trojans


Denial of Service(DOS) Attack

Password Theft


Tampering etc.


Cyber Attacks in the Recent Years

According to a recent survey report, 72% of the Indian

Companies faced Cyber Attacks in 2015.Sony Pictures (Nov 2014) – Loss of several internal data centers

Staples (Oct 2014) – Access to Information of about 1.16 Million Credit Cards


Factors influencing Cyber Attacks

Failure in inclusion of Security and Controls in the Company design principles.Failure in understanding the root cause of the attacks / issues while resolving them.

Lack of Technical Expertise on the Cyber Security within the OrganizationIneffective Threat analytics Slide10

How to Mitigate Cyber Risks ?

Know potential attackers ? Understand their objectives

Know what tactics they might use ?Establish or/and Enhance risk – prioritized controls.Detect violations & anomalies through better situational awareness across the environment.

Establish the ability to quickly return to normal operations & repair damage to the business.Slide11

Who is responsible for Cyber SecuritySlide12

Fraud Detection

Use of Techniques such as :

Statistical & Mathematical TechniquesDigital/ Electronic Techniques CAAT

Data Mining

Identification of Fraud Symptoms

Investigation of Symptoms Slide13

Data Mining / Big Data Analytics

The Process of examining the large data sets containing a variety of data types.i.e.Big Data.

It uncovers hidden patterns, unknown correlations, trends and other useful business information. Slide14

Big Data Analytics : Process

Converts unstructured data into Structured data.

Based on such Structured data, conclusions are drawn.Suitable tools for big data analysis includes Time series Analysis, Data fusion and integration, Simulations etc.Slide15

An Eye on Frauds and ScamsSlide16

Satyam Scam

Fraud that disturbed the IT Industry and the whole nation

Loss caused to Investors was about Rs.14,162 croresRamalinga Raju, one of the Promoters and his family members secured illegal gains to the tune of about Rs.2,743 crores

Fraud was perpetrated by inflating the revenue of the company through false invoices and showing corresponding gains by forging the bank statements with the connivance of the Statutory and Internal Auditors of the Company

The Annual Financial Statements with inflated revenue were published for several years which led to higher prices of the Scrip in the Market

Attempts were made to conceal the fraud by acquiring the companies of Kith and KinSlide17

Satyam Scam


revealed that actual no. of employees were only 40,000 and 53,000 as reported earlier Mr. Raju had been allegedly withdrawing Rs.200 Million every month for paying these 13,000 non-existent employees

Inflated figures for Cash and Bank balances of Rs.5,040 Crores

Operating profits were artificially boosted from Rs.61 Crores to Rs.649 Crores

Showed an interest earnin

g of Rs.376 Crores that was fictitiousSlide18

Reebok Scam

Fraud of Reebok India came into light in March 2012

Amount involved in the Fraud was about Rs.870 CroreSubhinder Singh Prem, former Managing director and Vishnu Bhagat, former


Operating Officer were key members involved in the fraudulent activity

Over invoicing to the tune of Rs.147 Crores

Raising fake invoices to the tune of Rs.98 Crores to claim promotions, bonus and incentivesSlide19

Reebok Scam

Running False Franchisee referral programme, receipts from were about Rs.114

CroresMaintaining four secret warehouses where company goods were diverted

To finance the operations they also took loans from banks by using fake invoices and raised deposits from high net-worth individuals

Goods were being siphoned to Ghost companies and distributors across the country, claiming them to be defective pieces

Case was filed at Gurgaon Police Station and investigated by Serious Fraud Investigation Organization (SFIO)Slide20

Global Trust Bank Scam

Wrong Financial disclosures in the Financial Statements of 3 FYs – 2000 – 01, 2001 – 02 and 2002 – 03

RBI declared a 3 month moratorium on July 24, 2004Throughout its decade-long existence, the top management of the bank concentrated exclusively on generating returns to its key


Also Involved



stock market scam of 2001, in which the lead artist was the stockbroker Ketan


Global Trust Bank Scam


heavily to players in the capital market and when the market crashed the bank's balance sheet suffered a gaping hole because share prices had dropped dramaticallyIn 2001, when attempting a merger with UTI Bank, lent more than Rs.800 crores and much of them were proved injudicious

For 2001-02, the Net Worth was claimed to be Rs.400 Crores which on inspection by RBI was found to be negative

Ramesh Gelli, the Chairman of the Bank colluded with Ketan Parekh to push up the Share Price

Ramesh Gelli Slide22

Forensic Accounting: Scope of CAs’

Increasing no. of Frauds in the recent years.

Lack of Sufficient Expertise or time needed with Law Enforcement agencies.Insertion of Various Provisions in connection with Fraud in the Companies Act, 2013.Assisting in the Fraud Prevention and mitigating Cyber Risks. Slide23


Financial Frauds have been increasing over the last 2 decades.

They have caused huge losses to the Governments and General Public.Need of the Hour is to Fraud Prevention than Fraud Detection.Finance Professionals have a significant role to play in the Fraud Prevention.Slide24

K.Raghu & Co


Chartered Accountants.

“K R Pinnacle”,No.281,II Floor,

7th Main, B.T.M Layout, 2nd Stage, Bangalore - 560 076.

Ph: +91 80 26680897 / +91 80 26680941 - Mob: +919341219091


 – Website:

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