The Bloodhounds of Bookkeeping

Anil Roy, Partner and head of Forensic and Investigation Services at Grant Thornton, would have handled at least 500 cases of accounting-related fraud in his professional life. After the Satyam scam, his job has increased manifold as many technology companies have approached his firm in order to allay the fears of their clients.

Mayur Joshi, a 29-year-old Chartered Accountant and Chief Executive Officer of India Forensic, a Pune-based forensic accounting research firm, has got at least 10 calls from institutional investors in the Asia-Pacific region since the Satyam fraud came to light. “They want to understand what could be the initial warning signals of a Satyam kind of fraud in other Indian companies,” says Joshi. India Forensic provides certification course in three kinds of fraud—banking, corporate and money-laundering. It also assists IT-enabled services companies in fraud investigations. Joshi claims that some of the associate members of India Forensic have also been approached by foreign companies to audit and inspect the accounts of their subsidiaries. Even the government’s Serious Fraud Investigation Office (SFIO) has sought the help of forensic accountants to get to the root of the financial fraud at Satyam.

Forensic accounting is unique in that it combines accounting with investigation. These bloodhounds— as opposed to the watchdogs that are auditors— attempt to sniff out fraudulent transactions from the financial records of banks and companies. Roy says that the nature of fraud in India has undergone a change. Earlier, cases of fraud were driven by collusion between an employee or an outsider or a vendor of the company. But over the past few years, fraud has occurred because an individual or a group could bypass the whole system and the network of the company.

He gives an instance of an Indian commodity company in which an employee of its subsidiary in a foreign country kept transferring payments from the company’s account to his personal account. The system was such that it allowed for manual data entry of the invoices and bills and the employee would often make changes in the manual entry procedure, so that the payments are made directly into his bank accounts. The employee got away with the fraud for three years until finally the parent company found something suspicious. That’s when Roy’s forensic team helped in tracing how the fraud has been committed.

“Over the past few years, Indian companies have understood the need for a preventive approach towards fraud. The idea is to have a proper framework for fraud risk assessment and a well-laid out plan for dealing with fraud if it’s detected and determining who can take action and how,” Roy says.

Joshi adds that India has 400 forensic accountants empanelled with large audit firms or working independently, which is far too low as there is a lack of awareness about the subject. His firm conducted a research last September and found that nearly 1,200 Indian companies could have manipulated their accounts.

Source: Business Today, by Rachna M. Koppikar