Presentation on theme: "Forensic Accounting and Fraud Prevention"— Presentation transcript
Slide1
Forensic Accounting and Fraud Prevention
By,
CA K RAGHU,
PAST PRESIDENT – INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIASlide2
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 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
Slide3
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.
Slide4
Major Scams and Frauds in the Recent Years
Scams and Frauds
Year
Losses
Suffered / Amount involved in Fraud
Waste Management
Scam
1998
$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
Year
Losses
Suffered / Amount involved in Fraud (Rs.)
Harshad
Mehta Securities Market Scam
1991
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
2010
25,000
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
Phishing
Denial of Service(DOS) Attack
Password Theft
Spoofing
Tampering etc.
Slide8
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
Slide9
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
CID
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
Chief
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
shareholders
Also Involved
in
the
stock market scam of 2001, in which the lead artist was the stockbroker Ketan
ParekhSlide21
Global Trust Bank Scam
Lent
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
Conclusion
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
E-mail:
kraghu@kraghu.com
– Website:
www.kraghu.com
