Accounting regulator the Institute of Chartered Accountants of India (ICAI) has asked the government to make outsourcing of internal audit functions mandatory for companies to prevent a Satyam-like fraud from happening again.
The suggestion is part of the recommendations by a high-powered committee of ICAI to the Corporate Affairs Ministry in the aftermath of a Rs 10,000-crore scam in Satyam Computer and is intended to strengthen the internal audit system of companies.
"We have recommended that internal audit should be outsourced rather than in-house because internal audit in-house is always dependent on the management of the company. Internal audit from outside will always be better, and then it should be given to chartered accountants," ICAI President Amarjit Chopra told PTI.
The role of internal auditors came under scanner after Satyam Computer founder B Ramalinga Raju confessed to having cooked the books of the company for years. The IT firm's internal audit head S Prabhakar Gupta was arrested for his alleged role in the multi-crore fraud.
Interestingly, Satyam's internal audit team was given recognition of commitment award by the US-based Institute of Internal Auditors in 2006.
Chopra further said that since internal audit is the first check-post for any accounting fraud, due care should be taken to ensure it is conducted by the right people and independently.
"We already have 17 internal audit standards and we have asked the Government to make these standards mandatory for internal audits, whether through Sebi or through company law, so that there is standardisation of internal audit procedures," Chopra said.
The standards are benchmarks for internal auditors and are aimed at ensuring standardisation, independence and more consistency in the functioning.
They also differentiate auditor's responsibilities when it comes to complying with the law and regulations that have direct impact on financial statements as well as significant effect on the functioning of the company.
Source: Business India; July 8,2010; By Press Trust of India, New Delhi
Monday, July 12, 2010
Tuesday, July 6, 2010
Raise the bar on corporate governance
THERE IS A NEED TO EXPAND THE NET & IMPROVE IMPLEMENTATION OF GOVERNANCE NORMS
MONISH CHATRATH Executive Director,Mazars
THE START OF THIS CENTURY WAS MARKED by an emphasis on corporate governance,thanks largely to a string of collapses of several high profile companies.The world of business was shocked with both the scale and age of unethical and illegal operations.Consequently,the need for adoption of good corporate governance principles has not only got reinforced,but inevitably and inextricably,efforts to this end have gathered momentum every time a new corporate scandal came to light.And India is no exception to this phenomenon.
Events last year involving Satyam Computer Systems have prompted several questions and various forms of introspections on corporate governance practices,as well as brought focus on aspects relating to discipline exercised by the dominant shareholder,accountability of the management,role of the auditors (external and internal),functioning of the board and audit committee and also the value of ethical conduct in business.The spotlight is now firmly on key aspects of the governance framework,with particular emphasis on the audit and finance functions which have a legal,moral and ethical responsibility to identify and disclose aspects of a promoter-driven agenda that have the potential to impact the interests of other stakeholders adversely.
Although corporate governance is the legal framework,the ethical framework and the moral framework within which business decisions are taken;the focus in India continues to be largely around the legal framework.Since there is no dearth of legislation relating to corporate governance,it is the latter two aspects that need more focus in India.The challenge for policymakers in India is to reach an appropriate balance of legislative and regulatory reform,taking into consideration international best practices that augur well with the growth climate in India,while also fostering greater enterprise and enhancing competitiveness in a manner that can stimulate further investments.
While some of the current laws and regulations in India are possibly amongst the best in the world,there are several others which are somewhat archaic.India also needs greater focus and more proactive,yet a simplified monitoring and enforcement framework to ensure effective levels of compliance with regulations.Undoubtedly unless there is a genuine intention within an organisation to incorporate compliance in principle as opposed to compliance in legal form into corporate strategy and operations,regulations will only have a limited effect.
In business ethics,what was good is becoming bad and what was considered bad is now good.Standards for corporate governance that have worked for decades are looking old fashioned or immoral while other practices that raised questions are now becoming totally acceptable.Debates,discussions and reviews on corporate governance have predominantly focused on large,listed and high profile companies with dispersed shareholdings and there is an impending need to expand the net,in recognition of the impact of issues relating to financial transparency,the role of access to outside capital and conflict resolution,to non-listed and family controlled companies.These today are considered a crucial component of the growth engine for the Indian economy.
While analysing corporate governance in PSUs,the consideration that often come up relate to the perceptions on the over-regulation of state-owned units in India,which on one hand are accountable to various authorities under several regulations including Parliament,Comptroller and Auditor General of India,Central Vigilance Commission and the Right to Information Act and on the other are susceptible to bureaucratic hurdles.
Good governance has been further augmented in the past few years by a rise in the recognition of CSR.This is based on an understanding of the expectations that our communities have regarding the social contract that organisations have with communities.This may include public reporting,openness to input,access points for complaints about services or tips regarding illegal actions of employees.
Corporate governance and CSR are both extremely important to an organisation.But it is not a natural thing to separate the two.If an organisation has a well formed governance programme in place,the same would possibly also take care of most of the social issues.Organisations are increasingly focusing on the impact of their business activity on society and in doing so many have created CSR programmes to balance their operations.Taking responsibility for its impact on society means in the first instance that an organisation takes accountability for its actions and the effect of the same on particular interests groups within the society.
In todays globalised,interconnected and competitive world,the way that environmental,social and corporate governance issues are managed is a part of the organisations overall management philosophy to compete successfully.Organisations that perform better with regard to these issues can increase shareholder value by properly managing risks,anticipating regulatory action or accessing new markets while at the same time contributing to the sustainable development of the societies in which they operate.
Sustainable value also emanates from an organisations ability to adhere with a corporate culture of conscience and consciousness,transparency and openness,fairness and accountability,propriety and equity.Certain combinations of governance mechanism may work for certain periods of time.Change,however,will inevitably occur.
Development of norms and guidelines are an important first step in a serious effort to improve corporate governance.The bigger challenge in India,however,lies in the proper implementation of those rules at the ground level.More needs to be done to ensure adequate corporate governance in the average Indian company.Further,even the most prudent norms can be hoodwinked in a system plagued with widespread corruption.
Nevertheless,with the successful turnaround of Satyam with the commendable and active support of the government which itself took swift and planned action,at the same time exercising considered restrain wherever required instead and with industry organisations and chambers of commerce themselves pushing for an improved corporate governance system,the future of corporate governance in India promises to be distinctly better than the past.
(Views are personal).
MONISH CHATRATH Executive Director,Mazars
THE START OF THIS CENTURY WAS MARKED by an emphasis on corporate governance,thanks largely to a string of collapses of several high profile companies.The world of business was shocked with both the scale and age of unethical and illegal operations.Consequently,the need for adoption of good corporate governance principles has not only got reinforced,but inevitably and inextricably,efforts to this end have gathered momentum every time a new corporate scandal came to light.And India is no exception to this phenomenon.
Events last year involving Satyam Computer Systems have prompted several questions and various forms of introspections on corporate governance practices,as well as brought focus on aspects relating to discipline exercised by the dominant shareholder,accountability of the management,role of the auditors (external and internal),functioning of the board and audit committee and also the value of ethical conduct in business.The spotlight is now firmly on key aspects of the governance framework,with particular emphasis on the audit and finance functions which have a legal,moral and ethical responsibility to identify and disclose aspects of a promoter-driven agenda that have the potential to impact the interests of other stakeholders adversely.
Although corporate governance is the legal framework,the ethical framework and the moral framework within which business decisions are taken;the focus in India continues to be largely around the legal framework.Since there is no dearth of legislation relating to corporate governance,it is the latter two aspects that need more focus in India.The challenge for policymakers in India is to reach an appropriate balance of legislative and regulatory reform,taking into consideration international best practices that augur well with the growth climate in India,while also fostering greater enterprise and enhancing competitiveness in a manner that can stimulate further investments.
While some of the current laws and regulations in India are possibly amongst the best in the world,there are several others which are somewhat archaic.India also needs greater focus and more proactive,yet a simplified monitoring and enforcement framework to ensure effective levels of compliance with regulations.Undoubtedly unless there is a genuine intention within an organisation to incorporate compliance in principle as opposed to compliance in legal form into corporate strategy and operations,regulations will only have a limited effect.
In business ethics,what was good is becoming bad and what was considered bad is now good.Standards for corporate governance that have worked for decades are looking old fashioned or immoral while other practices that raised questions are now becoming totally acceptable.Debates,discussions and reviews on corporate governance have predominantly focused on large,listed and high profile companies with dispersed shareholdings and there is an impending need to expand the net,in recognition of the impact of issues relating to financial transparency,the role of access to outside capital and conflict resolution,to non-listed and family controlled companies.These today are considered a crucial component of the growth engine for the Indian economy.
While analysing corporate governance in PSUs,the consideration that often come up relate to the perceptions on the over-regulation of state-owned units in India,which on one hand are accountable to various authorities under several regulations including Parliament,Comptroller and Auditor General of India,Central Vigilance Commission and the Right to Information Act and on the other are susceptible to bureaucratic hurdles.
Good governance has been further augmented in the past few years by a rise in the recognition of CSR.This is based on an understanding of the expectations that our communities have regarding the social contract that organisations have with communities.This may include public reporting,openness to input,access points for complaints about services or tips regarding illegal actions of employees.
Corporate governance and CSR are both extremely important to an organisation.But it is not a natural thing to separate the two.If an organisation has a well formed governance programme in place,the same would possibly also take care of most of the social issues.Organisations are increasingly focusing on the impact of their business activity on society and in doing so many have created CSR programmes to balance their operations.Taking responsibility for its impact on society means in the first instance that an organisation takes accountability for its actions and the effect of the same on particular interests groups within the society.
In todays globalised,interconnected and competitive world,the way that environmental,social and corporate governance issues are managed is a part of the organisations overall management philosophy to compete successfully.Organisations that perform better with regard to these issues can increase shareholder value by properly managing risks,anticipating regulatory action or accessing new markets while at the same time contributing to the sustainable development of the societies in which they operate.
Sustainable value also emanates from an organisations ability to adhere with a corporate culture of conscience and consciousness,transparency and openness,fairness and accountability,propriety and equity.Certain combinations of governance mechanism may work for certain periods of time.Change,however,will inevitably occur.
Development of norms and guidelines are an important first step in a serious effort to improve corporate governance.The bigger challenge in India,however,lies in the proper implementation of those rules at the ground level.More needs to be done to ensure adequate corporate governance in the average Indian company.Further,even the most prudent norms can be hoodwinked in a system plagued with widespread corruption.
Nevertheless,with the successful turnaround of Satyam with the commendable and active support of the government which itself took swift and planned action,at the same time exercising considered restrain wherever required instead and with industry organisations and chambers of commerce themselves pushing for an improved corporate governance system,the future of corporate governance in India promises to be distinctly better than the past.
(Views are personal).
Monday, June 28, 2010
Ex-Brocade CEO sentenced for fraud
LOS ANGELES: A US judge sentenced the former chief executive of Brocade Communications Systems Inc to 18 months in prison for securities fraud, and ordered him to pay a $15 million fine, said Jack Gillund, a spokesman for the US Attorney's Office.
Gregory Reyes was found guilty in March of securities fraud, after becoming one of the highest profile executives to be accused of illegal stock options backdating.
The sentence that US District Judge Charles R Breyer imposed on Reyes in San Francisco was similar to one handed down in the former executive's first trial in 2007.
That conviction was overturned by the US Court of Appeals for the Ninth Circuit, over prosecutorial misconduct. The appeals court ruled that prosecutors made a false assertion of material fact to the jury during closing arguments.
But US prosecutors re-tried Reyes, resulting in a conviction and a win for the government, which has struggled to secure convictions in backdating cases.
Backdating is the practice of retroactively pricing option grants on days a company's stock price was low, to lock in financial gains. The practice in effect increases the value of the options, but is not illegal if properly accounted for.
Prosecutors said that Reyes engaged in illegal backdating to reward insiders and mislead investors, and to pad his own pocket from the scheme.
Reyes had originally been given a 21-month prison term and a fine of $15 million. The backdating of stock option grants became a major issue in 2007, with more than 170 companies either investigated by US authorities or conducting internal inquiries into possible manipulation of stock-option grant dates.
Source: TOI, 28.06.10
Gregory Reyes was found guilty in March of securities fraud, after becoming one of the highest profile executives to be accused of illegal stock options backdating.
The sentence that US District Judge Charles R Breyer imposed on Reyes in San Francisco was similar to one handed down in the former executive's first trial in 2007.
That conviction was overturned by the US Court of Appeals for the Ninth Circuit, over prosecutorial misconduct. The appeals court ruled that prosecutors made a false assertion of material fact to the jury during closing arguments.
But US prosecutors re-tried Reyes, resulting in a conviction and a win for the government, which has struggled to secure convictions in backdating cases.
Backdating is the practice of retroactively pricing option grants on days a company's stock price was low, to lock in financial gains. The practice in effect increases the value of the options, but is not illegal if properly accounted for.
Prosecutors said that Reyes engaged in illegal backdating to reward insiders and mislead investors, and to pad his own pocket from the scheme.
Reyes had originally been given a 21-month prison term and a fine of $15 million. The backdating of stock option grants became a major issue in 2007, with more than 170 companies either investigated by US authorities or conducting internal inquiries into possible manipulation of stock-option grant dates.
Source: TOI, 28.06.10
Sunday, May 30, 2010
US sees 78 bank failures in 2010
NEW YORK: With five more US banks biting the dust this week, a whopping 78 entities have folded up their businesses so far this year.
Mirroring the financial woes faced by the American banking industry, an average of 15banks are going bankrupt every month.
Recently, the Federal Deposit Insurance Corporation (FDIC), which insures deposits at over 8,000 American banks warned of more failures in the coming months.
Authorities shut down five entities on May 28. They are Bank of Florida -- Southwest; Bank of Florida -- Southeast; Bank of Florida-- Tampa Bay, Sun West Bank and Granite Community Bank.
These failures are expected to cost the FDIC as much as USD 317 million.
The three Florida-based banks were owned by Bank of Florida Corporation.
In the first three months of 2010, the number of 'problem' banks climbed to 775, the highest in nearly 17 years. The same stood at just 702 at the end of 2009.
This month alone, 14 banks have gone out of business. The count of collapses are anticipated to rise in the wake of high unemployment levels, which is resulting in increased defaults at banks.
Last year, a whopping 140 banks in the US went belly up.
"There will be more failures, to be sure. The banking system still has many problems to work through and we cannot ignore the possibility of more financial market volatility," FDIC chairperson Sheila C Bair said recently.
Source: The Times of India, 30.05.10
Mirroring the financial woes faced by the American banking industry, an average of 15banks are going bankrupt every month.
Recently, the Federal Deposit Insurance Corporation (FDIC), which insures deposits at over 8,000 American banks warned of more failures in the coming months.
Authorities shut down five entities on May 28. They are Bank of Florida -- Southwest; Bank of Florida -- Southeast; Bank of Florida-- Tampa Bay, Sun West Bank and Granite Community Bank.
These failures are expected to cost the FDIC as much as USD 317 million.
The three Florida-based banks were owned by Bank of Florida Corporation.
In the first three months of 2010, the number of 'problem' banks climbed to 775, the highest in nearly 17 years. The same stood at just 702 at the end of 2009.
This month alone, 14 banks have gone out of business. The count of collapses are anticipated to rise in the wake of high unemployment levels, which is resulting in increased defaults at banks.
Last year, a whopping 140 banks in the US went belly up.
"There will be more failures, to be sure. The banking system still has many problems to work through and we cannot ignore the possibility of more financial market volatility," FDIC chairperson Sheila C Bair said recently.
Source: The Times of India, 30.05.10
Monday, April 26, 2010
Make phone banking more secure: RBI -
NEW DELHI: Banks will have to soon put in place an additional authentication cover for their credit and debit card customers transacting over phone, or get penalized.
Taking forward its efforts to tackle identity frauds in non-branch banking transactions, the Reserve Bank has asked all the banks operating in the country to put in place by next year a system where credit and debit card customers would need to provide an additional password for IVR (interactive voice response) transactions.
IVR transactions are done over phone, wherein customers dial bank's customer care number and are prompted by a recorded voice to dial designated digits for different kinds of transactions such as balance enquiry, bill payment etc.
The customers would now need to key-in an additional password on their phone, besides prevalent details like card number, date of birth, card issue or expiry date and in some cases a telephonic password. As RBI has also noted, there has been a stupendous rise in banking transactions through channels other than traditional branch banking.
Source : Times Of India
Taking forward its efforts to tackle identity frauds in non-branch banking transactions, the Reserve Bank has asked all the banks operating in the country to put in place by next year a system where credit and debit card customers would need to provide an additional password for IVR (interactive voice response) transactions.
IVR transactions are done over phone, wherein customers dial bank's customer care number and are prompted by a recorded voice to dial designated digits for different kinds of transactions such as balance enquiry, bill payment etc.
The customers would now need to key-in an additional password on their phone, besides prevalent details like card number, date of birth, card issue or expiry date and in some cases a telephonic password. As RBI has also noted, there has been a stupendous rise in banking transactions through channels other than traditional branch banking.
Source : Times Of India
Saturday, April 24, 2010
IMP UPDATE : RBI Guidelines - Prohibiting alterations / corrections on cheques
Dear All,
Please go through the attached Notice/ Circular post the communication from RBI for Banks on Guidelines to follow in case of alterations on cheques. This will get implemented from July 01, 2010.
As per RBI Circular - DPSS.CO.CHD.No. 1832/01.07.05/2009-10 dated 22nd February 2010
Prohibiting alterations / corrections on cheques :
No changes / corrections should be carried out on the cheques (other than for date validation purposes, if required). For any change in the payee’s name, courtesy amount (amount in figures) or legal amount (amount in words), etc., fresh cheque forms should be used by customers. This would help banks to identify and control fraudulent alterations.
In view of the above guidelines, with effect from July 01, 2010 no alterations in cheque will be allowed (even if signature is made at the place of alteration on cheque). These kinds of altered cheques will not be honored by Bank.
Source : Reserve Bank Of India
Please go through the attached Notice/ Circular post the communication from RBI for Banks on Guidelines to follow in case of alterations on cheques. This will get implemented from July 01, 2010.
As per RBI Circular - DPSS.CO.CHD.No. 1832/01.07.05/2009-10 dated 22nd February 2010
Prohibiting alterations / corrections on cheques :
No changes / corrections should be carried out on the cheques (other than for date validation purposes, if required). For any change in the payee’s name, courtesy amount (amount in figures) or legal amount (amount in words), etc., fresh cheque forms should be used by customers. This would help banks to identify and control fraudulent alterations.
In view of the above guidelines, with effect from July 01, 2010 no alterations in cheque will be allowed (even if signature is made at the place of alteration on cheque). These kinds of altered cheques will not be honored by Bank.
Source : Reserve Bank Of India
Friday, April 23, 2010
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