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Forensic Investigations and Fraud Reporting in India  
Practical insights to Predict, Prevent, Detect and Investigate Frauds
Author(s): Sandeep Baldava, Deepa Agarwal
Published by Bloomsbury Publishing India Pvt. Ltd
Publication Date:  Available in all formats
ISBN: 9789356405950
Pages: 578

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Table of contents

Biographical note

This book provides an indispensable resource and pragmatic commentary on forensic investigations and fraud reporting, dealing with various aspects of forensic investigations in India. The book covers numerous real-life fraud scenarios and case studies in a lucid language from the vast experience of the authors in forensic accounting that would immensely help corporates and professionals in understanding and preventing frauds. The book will be useful for forensic professionals, CEOs, CFOs, CROs, independent directors, company secretaries, statutory auditors, internal auditors, lawyers, in-house counsels, corporates as well as students.

With expert insights from Audit Committee Chair, Independent Director, CEO, CFO, CHRO, CIA, Corporate Lawyer, auditor and Senior IPS Officer

Nawshir H Mirza

Audit Committee Chairman, Thermax Limited

Varun Berry

Managing Director, Britannia Industries Limited

Uday S. Dutt

IPS (Retd.) Former Joint Director- Bank, Securities and Fraud Cell – CBI

Rajani Kesari

Chief Financial Officer, Holcim India & CFO, Ambuja Cements Limited

Aditya Vikram Bhat

Senior Partner, AZB & Partners

Anil Bhandari

Central Council Member, ICAI

M.D. Ranganath

Audit Committee Chairman, HDFC Bank Limited

Saumen Chakraborty

Independent Director, and former Global CHRO

Amit Garg

IPS, Joint Director, Sardar Vallabhbhai Patel National Police Academy

Percy Amalsadiwalla

President The Institute of Internal Auditors, India Bombay Chapter

Sudhir Soni

Chartered Accountant

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Description

This book provides an indispensable resource and pragmatic commentary on forensic investigations and fraud reporting, dealing with various aspects of forensic investigations in India. The book covers numerous real-life fraud scenarios and case studies in a lucid language from the vast experience of the authors in forensic accounting that would immensely help corporates and professionals in understanding and preventing frauds. The book will be useful for forensic professionals, CEOs, CFOs, CROs, independent directors, company secretaries, statutory auditors, internal auditors, lawyers, in-house counsels, corporates as well as students.

With expert insights from Audit Committee Chair, Independent Director, CEO, CFO, CHRO, CIA, Corporate Lawyer, auditor and Senior IPS Officer

Nawshir H Mirza

Audit Committee Chairman, Thermax Limited

Varun Berry

Managing Director, Britannia Industries Limited

Uday S. Dutt

IPS (Retd.) Former Joint Director- Bank, Securities and Fraud Cell – CBI

Rajani Kesari

Chief Financial Officer, Holcim India & CFO, Ambuja Cements Limited

Aditya Vikram Bhat

Senior Partner, AZB & Partners

Anil Bhandari

Central Council Member, ICAI

M.D. Ranganath

Audit Committee Chairman, HDFC Bank Limited

Saumen Chakraborty

Independent Director, and former Global CHRO

Amit Garg

IPS, Joint Director, Sardar Vallabhbhai Patel National Police Academy

Percy Amalsadiwalla

President The Institute of Internal Auditors, India Bombay Chapter

Sudhir Soni

Chartered Accountant

Table of contents
  1. Cover
  2. Title Page
  3. Acknowledgement
  4. About the authors
  5. Foreword 1
  6. Foreword 2
  7. Praise for the book
  8. Preface
  9. Contents at a glance
  10. Table of contents
  11. Chapter 1 Overview of white-collar crimes in India
    1. 1.1 Introduction
    2. 1.2 Evolution of white-collar crimes
    3. 1.3 Impact of white-collar crimes
    4. 1.4 Why are educated and well-read people not spared from white-collar crime?
    5. 1.5 Repeat frauds
    6. 1.6 Who commits white-collar crimes and Why?
    7. 1.7 When & why people commit frauds - Prominent white-collar crime theories
      1. 1.7.1 Fraud Triangle – Donald R Cressey
      2. 1.7.2 The Fraud Diamond Theory
      3. 1.7.3 Theory of Dark Triad Personality
      4. 1.7.4 Author’s take on this topic
        1. 1.7.4.1 The fence sitter phenomenon
        2. 1.7.4.2 ‘We have no choice’ fraudsters
        3. 1.7.4.3 Robinhood fraudsters
        4. 1.7.4.4 Today’s fraudsters create opportunities
      5. 1.7.5 Lightning does strike twice…
        1. 1.7.5.1 Case 1: Head clerk at a bank
        2. 1.7.5.2 Case 2: Treasury manager at a agro chemical exports company
      6. 1.7.6 Repetition of similar modus operandi –case studies
        1. 1.7.6.1 Enron (Year 2001)
        2. 1.7.6.2 Worldcom (Year 2002)
        3. 1.7.6.3 Parmalat SpA (Year 2003)
        4. 1.7.6.4 Satyam Computer Services Limited (Year 2009)
        5. 1.7.6.5 We learnt our lessons from the above cases or did we?
    8. 1.8 Evolution of frauds – ACFE’s Report to the Nations
      1. 1.8.1 Types of frauds
      2. 1.8.2 Corruption
      3. 1.8.3 Type of organisation
      4. 1.8.4 Sector-specific study
      5. 1.8.5 Duration of frauds
      6. 1.8.6 Action and recovery
    9. 1.9 Examples of white-collar crimes
      1. 1.9.1 Bank frauds
      2. 1.9.2 Bribery and corruption
      3. 1.9.3 Corporate frauds
      4. 1.9.4 Counterfeiting
      5. 1.9.5 Cyber frauds
      6. 1.9.6 Embezzlement
      7. 1.9.7 Insider trading
      8. 1.9.8 Money laundering
      9. 1.9.9 Ponzi schemes
      10. 1.9.10 Tax frauds or tax evasion
    10. 1.10 Specific measures to reduce or curb White-collar Crimes – Key takeaways
    11. Expert Speak: Unravelling the story of one of the biggest Ponzi scams in India
  12. Chapter 2 Definition of “Fraud” under relevant governance regulations
    1. 2.1 Introduction
    2. 2.2 General definitions of fraud
    3. 2.3 Conditions of fraud
      1. 2.3.1 Fraud vs Error - “Intent is the key”
      2. 2.3.2 Categories of fraud
      3. 2.3.3 Association of Certified Fraud Examiners (ACFE)
    4. 2.4 Definition of fraud under various Acts & statutes
      1. 2.4.1 Indian Contract Act, 1872
      2. 2.4.2 Indian Penal Code, 1860
      3. 2.4.3 Companies Act, 2013
      4. 2.4.4 Securities and Exchange Board of India (SEBI) Laws
    5. 2.5 Bottom line
  13. Chapter 3 Integrity and ethics
    1. 3.1 Introduction
    2. 3.2 Who is responsible for upholding ethical standards in an organisation?
    3. 3.3 Setting tone at the top
    4. 3.4 The social psychology of corruption
    5. 3.5 Ethics and fraud prevention
      1. 3.5.1 Leading practices
    6. 3.6 Conclusion
    7. Expert Speak: Role of CHRO in promoting ethics and preventing frauds
  14. Chapter 4 Reporting of frauds under different governance regulations in India
    1. 4.1 Introduction
    2. 4.2 Management’s responsibility under different regulations
      1. 4.2.1 Responsibility – defined under the statute
    3. 4.3 Governing framework and reporting requirements under various statutes
      1. 4.3.1 Fraud reporting under Companies Act, 2013
        1. 4.3.1.1 Liabilities and penalties under section 447
      2. 4.3.2 Fraud reporting under Reserve Bank of India (RBI) laws
        1. 4.3.2.1 Master Directions on Frauds – Classification and Reporting by commercial banks and select FIs
        2. 4.3.2.2 Key requirements of Master Directions on Frauds
        3. 4.3.2.3 Classification of frauds
        4. 4.3.2.4 Reporting of frauds to Reserve Bank of India
        5. 4.3.2.5 Reports to the Board
        6. 4.3.2.6 Annual review of frauds
        7. 4.3.2.7 Special committee of the Board
        8. 4.3.2.8 Role of auditors
        9. 4.3.2.9 Revisiting the current process of Fraud Reporting by Banks
      3. 4.3.3 Fraud reporting under Securities and Exchange Board of India (SEBI)
        1. 4.3.3.1 Reporting of Fraud/defaults by promoter or key managerial personnel or by listed entity or arrest of key managerial personnel or promoter
        2. 4.3.3.2 Disclosure of initiation of forensic audit of listed entities – Amendment in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
        3. 4.3.3.3 Role of auditors
    4. 4.4 Way forward
    5. Annexures
      1. Annexure 1:FMR 1 - Report on Actual or Suspected Frauds in Banks
      2. Annexure 2:SEBI FAQs on forensic audits requiring disclosure
  15. Chapter 5 Roles and responsibilities of CEOs & CFOs in prevention, detection and investigation of frauds
    1. 5.1 Introduction
    2. 5.2 Management’s responsibility to prevent frauds
    3. 5.3 Responsibility under Companies Act, 2013
    4. 5.4 Responsibility under SEBI LODR Regulations, 2015
    5. 5.5 Way forward
    6. Expert Speak: Role of CEO in promoting ethics and setting “tone at the top”
    7. Expert Speak: Role of CFO in Fraud Risk Management
  16. Chapter 6 Roles and responsibilities of directors in prevention, detection and investigation of frauds
    1. 6.1 Introduction
    2. 6.2 Responsibilities of those charged with governance (Independent Directors/Audit Committee) in prevention and detection of fraudulent financial reporting
      1. 6.2.1 Role of independent directors under Companies Act, 2013
      2. 6.2.2 Role of Audit Committee under SEBI LODR Regulations, 2015
      3. 6.2.3 Roles of the Audit Committee in the prevention, deterrence, investigation, and discovery or detection of fraud
      4. 6.2.4 Role of Audit Committee in review and approval of related party transactions
      5. 6.2.5 Responsibility of Management - AS 2401: Consideration of Fraud in a Financial Statement Audit
      6. 6.2.6 Guidance Note on Reporting on Fraud under section 143(12) of the Companies Act, 2013
      7. 6.2.7 SOX Section 302 – Corporate responsibility for financial reports
      8. 6.2.8 Companies Act, 2013 – Directors’ responsibility statement
    3. 6.3 When fraud is discovered – Role of directors
    4. 6.4 Liabilities of directors
      1. 6.4.1 Liability under the Companies Act, 2013
      2. 6.4.2 Recommendation by CII with respect to liability of independent directors
    5. 6.5 Role of SEBI – Action against directors in case of non-compliance
    6. 6.6 Resignation of independent directors (ID)
    7. 6.7 Tackling Insider Trading Frauds – Special attention required from Independent Directors
    8. 6.8 Way forward
    9. 6.9 Conclusion
    10. Expert Speak: The Audit Committee’s role in enquiry into alleged frauds
    11. Annexures
    12. Annexure 1:Schedule II (Part C) of Securities and Exchange Board of India (LODR) Regulations, 2015
  17. Chapter 7 Role of internal auditor in prevention, detection and investigation of frauds
    1. 7.1 Introduction
    2. 7.2 Appointment of internal auditors
    3. 7.3 Regulatory requirements and guidance on an internal auditor’s role in the detection and reporting of frauds
    4. 7.4 Institute of internal auditors’ outlook
    5. 7.5 Impact of bribery and corruption
    6. 7.6 Internal auditor in spotlight
      1. 7.6.1 ABC Scam: ABC’s Chief Internal Auditor held by CBI
      2. 7.6.2 ACB nabs former internal auditor
      3. 7.6.3 Flaws in internal audit function come to fore
      4. 7.6.4 RBI flags rise in bank frauds and role of audits
      5. 7.6.5 Case study - Internal Audit vs Bribery and Corruption
    7. 7.7 Internal Auditor’s role in audit of culture to improve overall governance and prevent frauds
    8. 7.8 What should internal auditors do?
    9. 7.9 Way forward
    10. Expert Speak: Role of Internal Audit in Prevention, Detection and Investigation of Frauds
  18. Chapter 8 Fraud detection and reporting – role of statutory auditor
    1. 8.1 Introduction
      1. 8.1.1 Role of statutory auditor - Watchdogs or Bloodhounds
    2. 8.2 Reporting under section 143(12) of the Companies Act, 2013
    3. 8.3 ICAI Guidance Note on Reporting on Fraud under section 143(12) of Companies Act, 2013
    4. 8.4 Implementation challenges on fraud reporting
      1. 8.4.1 Definition of fraud for reporting under section 143(12)
      2. 8.4.2 Frauds relating to earlier years but noticed in subsequent years (e.g. during the year 2014-15 or in a later year)
      3. 8.4.3 Reporting to the Central Government, based on management explanations and steps taken by it, and subsequent finding of no fraud
      4. 8.4.4 Frauds by third parties such as vendors and customers
      5. 8.4.5 Fraud noted in the course of providing non-attest services
      6. 8.4.6 Frauds detected by management or other persons
      7. 8.4.7 Frauds detected by management or other persons – Reporting to Central Government
      8. 8.4.8 Fraud reporting to be based on suspicion or reason to believe or knowledge or on the determination of offence
    5. 8.5 Stages of Identification of fraud
      1. 8.5.1 Speculation
      2. 8.5.2 Suspicion
      3. 8.5.3 Reason to believe
      4. 8.5.4 Knowledge
    6. 8.6 Fraud involving management
    7. 8.7 Reporting on fraud under section 143(12)
    8. 8.8 Fraud risk assessments
    9. 8.9 Statutory Audit approach related to risk of fraud
    10. 8.10 Audit procedures if auditor has reasons to believe that fraud has occurred or is being carried out
      1. 8.10.1 Reporting to the Central Government in Form ADT – 4
      2. 8.10.2 Evaluation of impact on the Financial Statements, Audit Opinion on the Financial Statements and Internal Financial Controls
    11. 8.11 Reporting of fraud under Companies (Auditor’s Report) Order, 2016 – Clause 3(x)
    12. 8.12 Overview of the external auditor’s responsibilities with respect to illegal acts
    13. 8.13 Non-Compliance of Laws and Regulations (NOCLAR)
      1. 8.13.1 Inquiries related to fraud and non-compliance with laws and regulations by auditor
      2. 8.13.2 Extracts from recent speech by RBI Governor on role of audit
      3. 8.13.3 Key takeaways for an auditor
      4. 8.13.4 Illustrative red flags that auditors should watch for while conducting audits
      5. 8.13.5 Illustrative red flags to watch out for - associated with Governance structures
      6. Expert Speak: Role of ‘New age’ Auditor
      7. Annexures
      8. Annexure 1:Section 360 - Responding to non-compliance with laws and regulations during the course of audit engagements of listed entities (ICAI revised Code of Ethics, 2019)
      9. Annexure 2:Companies (Audit and Auditors) Amendment Rules, 2015 vide Notification no. G.S.R. 972(E) dated 14 December 2015
      10. Annexure 3:Form ADT 4, Report to Central Government
      11. Annexure 4:Illustrative fraud risk factors – Appendix 1 to SA 240
  19. Chapter 9 Financial statement frauds
    1. 9.1 Introduction
    2. 9.2 Learnings from accounting fraud discovered at a products and services company
    3. 9.3 Learnings from accounting fraud discovered at an apparel company
    4. 9.4 Types of financial statement frauds
      1. 9.4.1 Window dressing
      2. 9.4.2 Evergreening
      3. 9.4.3 Recycling of funds
    5. 9.5 What leads to financial statement frauds/ misstatements?
      1. 9.5.1 Types of financial statement frauds
    6. 9.6 Financial statement frauds – categories
      1. 9.6.1 Early recognition of revenues
      2. 9.6.2 Postponing expenses
      3. 9.6.3 Huge inventory and large amount of trade receivable
      4. 9.6.4 Falsifying accounting entries
      5. 9.6.5 Misleading non-GAAP reporting
    7. 9.7 Financial statement frauds – Impact of COVID-19
    8. 9.8 Mitigating the risk of common fraud schemes: Insights from SEC enforcement actions
    9. 9.9 How to mitigate common fraud risks
      1. 9.9.1 Clear communication and tone from the top
      2. 9.9.2 Review internal controls
      3. 9.9.3 Review monitoring processes
      4. 9.9.4 Maintain appropriate records
      5. 9.9.5 Update your fraud risk assessments
      6. 9.9.6 Red flags to watch out for
    10. 9.10 Way forward
  20. Chapter 10 Identification of fraud – Role of whistleblowers and Audit considerations
    1. 10.1 Introduction
    2. 10.2 Why whistleblowing is increasingly important
    3. 10.3 Legal framework
      1. 10.3.1 Establishment of Vigil Mechanism
    4. 10.4 Requirement in SEBI Listing Obligations And Disclosure Requirements) Regulations, 2015
    5. 10.5 SEBI makes reward for whistle-blowers on insider trading more attractive
    6. 10.6 Whistleblower Protection Act, 2014
      1. 10.6.1 Exemptions
      2. 10.6.2 Penalty
    7. 10.7 Safeguard against frivolous complaints
    8. 10.8 Developing an Effective Whistleblower Policy
    9. 10.9 Tip Sources
      1. 10.9.1 Who reports occupational fraud?
      2. 10.9.2 Parties to whom whistleblowers’ report3
    10. 10.10 Auditing considerations
    11. 10.11 Impact on Auditor’s Reporting
      1. 10.11.1 Additional reporting requirement under CARO 2020
    12. 10.12 Rise in whistle-blowing cases
    13. 10.13 Anonymous complaints
    14. 10.14 Whistleblower complaints – Central Vigilance Commission
    15. 10.15 Best practices for an effective whistle-blowing mechanism
      1. 10.15.1 Clear communication
      2. 10.15.2 Confidentiality and anonymity
      3. 10.15.3 Accessibility to third parties
      4. 10.15.4 Screening and monitoring
      5. 10.15.5 Remedial action and feedback
      6. 10.15.6 Report to the Audit Committee or Board of Directors
      7. 10.15.7 Reporter protection
    16. 10.16 Key takeaways - the impact of whistle-blowing systems
    17. Annexures
    18. Annexure 1:Regulations 7B to 7M of SEBI (Prohibition of Insider Trading) Regulations, 2015
    19. Annexure 2:Extracts from the ICAI Guidance Note on CARO 2020
  21. Chapter 11 Evolution of forensic accounting & investigations in India
    1. 11.1 Evolution in India – Government/public sector
      1. 11.1.1 Central Bureau of Investigation
      2. 11.1.2 Enforcement Directorate
      3. 11.1.3 Central Vigilance Commission
      4. 11.1.4 Mission of the Central Vigilance Commission
      5. 11.1.5 Serious Fraud Investigation Office
    2. 11.2 Evolution in India – Private sector
    3. 11.3 Learnings from Arthashatra
    4. 11.4 Fraud detection techniques, whistleblowing and types of punishment as captured in Arthasastra
    5. 11.5 Understanding symptoms of fraud occurrence
    6. 11.6 Examples of some forensic investigation techniques used by the fictional detective Sherlock Holmes
      1. 11.6.1 Typewritten documents
      2. 11.6.2 Handwriting
      3. 11.6.3 Ciphers
    7. 11.7 Forensic Investigation approach – Case study
    8. 11.8 Conclusion
    9. Expert Speak: Evolution of bank frauds/stock market scams and corresponding fraud prevention and investigation techniques
  22. Chapter 12 Types of forensic investigations in India
    1. 12.1 Types of forensic investigations
      1. 12.1.1 Diversion of funds or fund trail investigations (including round-tripping of funds)
      2. 12.1.2 Accounting fraud investigations (including revenue recognition and inventory manipulation)
      3. 12.1.3 Procurement fraud investigations
      4. 12.1.4 Recruitment fraud investigations
      5. 12.1.5 Data theft investigations
      6. 12.1.6 Vehicle emission fraud investigations
      7. 12.1.7 Computer forensics investigations
      8. 12.1.8 Retail loan fraud investigations
      9. 12.1.9 Phishing scams or business email compromise scam investigations
        1. 12.1.9.1 Key findings from the 2021 Business Email Compromise Report
        2. 12.1.9.2 Business email compromise scam – case study
        3. 12.1.9.3 Role of Forensic Investigation
      10. 12.1.10 Insurance claim fraud investigations
    2. 12.2 GST Input Tax Credit fraud – Forensic data analytics and investigations
      1. 12.2.1 Input tax credit modus operandi
      2. 12.2.2 Parallel supply chain modus operandi
      3. 12.2.3 How forensic data analytics is helping mitigate the risk of these frauds
    3. 12.3 Regulatory investigations in India
      1. 12.3.1 Companies Act, 2013
        1. 12.3.1.1 Relevant sections of the Companies Act, 2013
        2. 12.3.1.2 SFIO shall be the nodal investigation agency and other investigations not to be proceeded with
      2. 12.3.2 Inspection by SEBI – SEBI Act, 1992
      3. 12.4 Bottom line
  23. Chapter 13 Forensic accounting and investigation methodology
    1. 13.1 Introduction
    2. 13.2 Forensic accounting
      1. 13.2.1 Who is a forensic accountant
      2. 13.2.2 Key skills for a forensic accountant
      3. 13.2.3 Different engagements require different skills
      4. 13.2.4 Maintaining confidentiality
      5. 13.2.5 Maintain impartiality and focus on facts
      6. 13.2.6 Understand the boundary
    3. 13.3 Difference between forensic accounting, forensic investigation and forensic audit
    4. 13.4 forensic investigation – When initiated?
    5. 13.5 Types of Forensic Investigations (examples)
    6. 13.6 Forensic Investigation – Broad approach
      1. 13.6.1 Step 1 – Understand background
      2. 13.6.2 Step 2 – Prepare work plan
      3. 13.6.3 Step 3 - Build hypothesis & execute
        1. 13.6.3.1 How to build hypothesis in an investigation?
        2. 13.6.3.2 Use of critical thinking vs lateral thinking in investigations
      4. 13.6.4 Step 4 - Collate evidence
        1. 13.6.4.1 Review of digital data including unstructured data such as emails and chats
        2. 13.6.4.2 Access to data on devices (which might include personal data in addition to official data) used by employees
        3. 13.6.4.3 Rules related admissibility of “evidence” in India
        4. 13.6.4.4 Admissibility of WhatsApp chat as evidence
        5. 13.6.4.5 Admissibility of evidence obtained illegally
      5. 13.6.5 Step 5 – Conduct interviews
        1. 13.6.5.1 Be patient – who blinks first
        2. 13.6.5.2 Plan: Who, When & Where?
        3. 13.6.5.3 Documentation: Interview notes and confession/admission statement
        4. 13.6.5.4 Observing body language
        5. 13.6.5.5 Using pretext to crack interviews
      6. 13.6.6 Step 6 - Report results
    7. 13.7 Forensic investigation – Timelines
    8. 13.8 Forensic investigation – Typical challenges
    9. 13.9 Practical tips/protocols to be followed while performing forensic investigations
    10. 13.10 Conclusion
    11. Expert Speak: Forensic Investigations in India - Applicability and Importance of Attorney Client Privilege
    12. Annexures
    13. Annexure 1:Sample template - Employee consent to access, image and review laptop or phone or tablet
    14. Annexure 2:Extracts of the Indian Evidence Act, 1872
    15. Annexure 3:The Bankers’ Books Evidence Act, 1891 - Submission of Certified Copies of Entries/Print out to Courts
  24. Chapter 14 Audit vs. Forensic investigation
    1. 14.1 Introduction
    2. 14.2 Audit expectation gap
    3. 14.3 Fraud detection
    4. 14.4 How is a forensic accounting analysis different from an audit?
    5. 14.5 Difference between Audit and Forensic Investigation
    6. 14.6 Limitation of financial statement audit
  25. Chapter 15 Fraud Risk Management
    1. 15.1 Introduction
    2. 15.2 “No” Fraud to “Know” fraud approach
    3. 15.3 FRM – Emerging trends
    4. 15.4 FRM – SOX perspective
      1. 15.4.1 SOX requirements
    5. 15.5 The SOX audit process
    6. 15.6 Performing a fraud risk assessment
      1. 15.6.1 Segregation of duties
      2. 15.6.2 Expense reimbursements
      3. 15.6.3 Whistleblower hotline
      4. 15.6.4 Periodic reconciliation of bank accounts
      5. 15.6.5 Forensic Data Analytics
      6. 15.6.6 Using predictive analytics for fraud prevention
    7. 15.7 Managing fraud risk – Requirements in Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015)
      1. 15.7.1 Role of the Audit Committee
      2. 15.7.2 CEO/CFO certification
    8. 15.8 Whistle blower mechanism
    9. 15.9 Key questions emerging from the requirements of the SEBI LODR Regulations
    10. 15.10 Use of technology in fraud risk management
    11. 15.11 Using data, forensic, behavioural analysis, and training to prevent fraud
    12. 15.12 Fraud risk training and awareness
    13. 15.13 Fraud risk management - A guide to good practice issued by Chartered Institute of Management Accountants
    14. 15.14 Conclusion
    15. Expert Speak: Importance of proactive fraud risk assessment to prevent and detect frauds
    16. Annexure Sample FRM framework
  26. Chapter 16 Frauds at financial institutions, including banks
    1. 16.1 Introduction
    2. 16.2 Common fraud risks in banks/financial institutions
    3. 16.3 Different types of frauds
      1. 16.3.1 Phishing links
      2. 16.3.2 Vishing calls
      3. 16.3.3 ATM card skimming
      4. 16.3.4 Frauds using screen sharing app/remote access
      5. 16.3.5 Frauds by compromising credentials on results through search engines
      6. 16.3.6 Fake advertisements for extending loan by fraudsters
      7. 16.3.7 Fake loan websites/app frauds
      8. 16.3.8 Money Circulation/Ponzi/Multi-Level Marketing (MLM) Schemes Fraud
      9. 16.3.9 Fraudulent loans with forged documents
    4. 16.4 RBI data - public money lost in corporate Loan frauds
    5. 16.5 Reasons for frauds in financial institutions and banks
    6. 16.6 Factors impacting financial crime at financial services institutions
      1. 16.6.1 Scale
      2. 16.6.2 Global reach
      3. 16.6.3 Complexity of organisation structure
      4. 16.6.4 Complexity of product
    7. 16.7 Understanding impact of frauds - Stricter regulatory framework governing banks and data reported by Reserve Bank of India
      1. 16.7.1 Evolving regulatory framework driving increased compliance among financial institutions/banks
      2. 16.7.2 Master Directions on Frauds – Classification and Reporting by commercial banks and select FIs, dated 1st July 2016 (updated as on July 03, 2017)
      3. 16.7.3 RBI Master Directions on Frauds dated 1st July 2016 lists out 42 Early Warning Signals of Frauds
    8. 16.8 Risk based internal audit system for commercial banks
    9. 16.9 case studies
      1. 16.9.1 Case study 1 – Promoter’s ability to divert/siphon out funds a second time
      2. 16.9.2 Case study 2 - Large scale frauds perpetrated through misuse of standby letter of credit
      3. 16.9.3 Case study 3 – The curious case of sudden default by an international buyer of gold and jewellery exported from India
      4. 16.9.4 Case study 4 – Using overseas subsidiary/associate entity for borrowing funds, routing back to India and then siphoning off
      5. 16.9.5 Case study 5 – Large scale frauds through Letter of Undertaking (similar to SBLC frauds)
    10. 16.10 Frauds using LOU or LC
      1. 16.10.1 Learnings from the case studies (SBLC and LOU)
    11. 16.11 Related Party Transactions – key fulcrum of most of the fund diversion cases
      1. 16.11.1 Related party transactions – key modus operandi used to divert funds
    12. 16.12 Forensic Investigation of Bank Frauds - Case studies
      1. 16.12.1 Case study 1 – Suspected siphoning of funds through forged documents/entries
      2. 16.12.2 Case study 2 – Transactions with related parties
      3. 16.12.3 Case study 3 – NPA Account
      4. 16.12.4 Case study 4 – Forensic review of debtors and stock in a bank
    13. 16.13 How financial institutions and banks can identify frauds at early stage and take steps to reduce risks arising due to fraud
      1. 16.13.1 Developing Anti-Fraud Framework – FCRM structure and Fraud transaction monitoring
      2. 16.13.2 Fraud risk management
      3. 16.13.3 Investigation of frauds in banks
      4. 16.13.4 Harnessing technology and data innovation
    14. 16.14 Way forward
    15. Annexures
    16. Annexure 1:Journey of NPAs (CDR to CDR)
    17. Annexure 2:Forensic Investigation on behalf of Lenders -Target – Corporate Borrower: Sample Scope of work and Approach
    18. Annexure 3:RBI Guidelines on Risk-Based Internal Audit (RBIA) System
  27. Chapter 17 Case studies –Promoter, management, employee and third-party frauds
    1. 17.1 Introduction
    2. Employee frauds in India – Case studies
    3. 17.2 Case study 1 – Irregularities in procurement
    4. 17.3 Case study 2 – Procurement frauds – Learnings from CWG Case study
    5. 17.4 Case study 3 – Recruitment fraud
    6. 17.5 Case study 4 – Duplicate payments to vendors
    7. 17.6 Case Study 5 – Attendance Fraud (Biometric system)
    8. 17.7 Case study 6 – Leakage of critical information
    9. 17.8 Case study 7 – Funds transfer through spear phishing
    10. Management frauds in India - Case studies
    11. 17.9 Case study 8 – Routing of funds to acquire stake in group entities/ inflate share prices
    12. 17.10 Case study 9 – Window dressing and fund misappropriation by payments made to related parties
    13. 17.11 Case study 10 – Window dressing
    14. 17.12 Case study 11 – Window dressing
    15. 17.13 Case study 12 – Funds diversion
    16. 17.14 Case study 13 – Funds diversion
    17. 17.15 Case study 14 – Funds diversion
    18. 17.16 Case study 15 – Revenue inflation to gain higher valuation from potential investors (Pre Investment)
    19. 17.17 Case study 16 – Money siphoned though round tripping (Post investment) 460
    20. AnnexureLearnings from forensic investigations of multiple Trade Based Money Laundering Schemes
  28. Chapter 18 ICAI Standards - Forensic Accounting and Investigation Standards
    1. 18.1 Introduction
    2. 18.2 Applicability of FAIS
    3. 18.3 Basic principles of forensic accounting and investigations
    4. 18.4 Summary of FAIS
      1. 18.4.1 Standards on key concepts (100 Series)
      2. 18.4.2 Standards on Engagement Management (200 Series)
      3. 18.4.3 Standards on Executing Assignments (300 Series)
      4. 18.4.4 Standards on Executing Assignments (400 Series)
      5. 18.4.5 Standards on Reporting (500 Series)
      6. 18.4.6 Standards on Quality Control (600 Series)
    5. 18.5 Way forward
    6. Expert Speak: Issuance of Forensic Accounting and Investigation Standards by DAAB of the ICAI and its role & importance
  29. Chapter 19 Cyber fraud risk and Auditors’ role
    1. 19.1 Introduction
    2. 19.2 Cyber frauds
    3. 19.3 ICAI Digital Accounting and Assurance Board
      1. 19.3.1 How should the auditor consider cyber risks in audit of financial statements?
    4. 19.4 Cyber risk and financial statement audits
    5. 19.5 Cyber risk and the role of internal auditor
    6. 19.6 Cyber security
      1. 19.6.1 Common security elements that entities may use to prevent or detect a cyber attack
      2. 19.6.2 Way forward
  30. Chapter 20 Illustrative reporting by auditor and examples of reporting
    1. 20.1 Illustrative Qualifications in Audit reports on Fraud reporting
  31. Concluding remarks
  32. eCopyright
Biographical note

CA. Sandeep Baldava

B.Com (Hons.), ACA, CFE, CISA

Sandeep Baldava is a Chartered Accountant, a Certified Fraud Examiner and a Certified Information Systems Auditor by qualification with over 25 years of professional experience. Over the last two decades, he has led more than 1000 forensic investigations, fraud risk assessments and Anti-Corruption review engagements for companies headquartered in India, US, Asia, Europe & Africa. In his role as an international peer reviewer, he has performed reviews on forensic engagements across the globe giving him unparalleled experience in this field.

His forensics experience spans across sectors and business functions. From deciphering complex forex transaction frauds or revenue recognition frauds to unravelling fund diversion/corporate loan defaults, to cracking recruitment fraud schemes to uncovering conflict of interest situations, he has deployed his forensic skills widely in bringing white collar criminals to justice.

He led fraud risk assessments at leading corporates across sectors including pharmaceuticals, banking, technology, automobile, infrastructure, and retail. He has advised corporates on claiming/repudiating damages on account of termination/non-compliance with commercial contracts or other disputes. He has led engagements in M&A Scenario advising corporates and Private Equity firms on pre-investment forensic due diligence as well post-investment monitoring/investigations.

From interviewing the junior-most employee of an NGO at a remote village in India to interviewing several high-profile promoters/CEOs/CFOs, his breadth of forensic experience is very wide providing him the ability to handle unique situations that crop up regularly while conducting forensic investigations. He has closely worked with, as well as presented findings to regulators and enforcement agencies on some of the most complex and high-profile white-collar crime investigations in India.

Professional Achievements

Conferred with ‘Lifetime Dedication to Vigilance Award’ instituted by Vigilance Study Circle. The award was presented by the Central Vigilance Commissioner of India. He was a member of the Committee on Anti-Corruption Compliance of the American Chamber of Commerce in India. He was also a member of CII’s Special Group on Code of Business Ethics. He served as a member of the National Governing Council of the Institute of Internal Auditors, India Chapter and was President of the Hyderabad Chapter. He served as a member of the Board of Directors of the Association of Certified Fraud Examiners, India Chapter.

Articles/Publications

His articles on white collar crime, fraud prevention and forensics that are published regularly in media and professional publications/journals receive wide appreciation for explaining complex cases/topics in simple to understand language with practical examples. He has developed unique and innovative terms related to fraud and forensics that help in a better understanding of underlying concepts. A few examples include: TecKnowledgeY, Conveniently Delay Repayment Scheme (‘CDR’), “Passive” fraudsters, etc.

Trainings/Presentations

As a recognized thought leader on issues concerning fraud and corruption risks, Sandeep has delivered presentations and conducted training workshops for leading corporates and for central and state enforcement agencies in India.

    • “Vigilant India leveraging technology in structures and processes” – National Conference on Vigilance Awareness organized jointly by The Central Vigilance Commission and The Central Bureau of Investigation
    • Cracking Trade Based Money Laundering & other fraud schemes using forensic investigation techniques, Sardar Vallabhbhai Patel National Police Academy (NPA), Hyderabad
    • Fraud Concepts and Cyber Frauds - Reserve Bank of India
    • Terrorist Financing & White-Collar Crime - Training, National Investigation Agency (NIA), New Delhi
    • Workshop on Forensic Accounting, Central Bureau of Investigation Academy, Ghaziabad,
    • Reshaping Board’s Strategy to Embrace Technology for Sustainability in the Pandemic Era – Institute of Directors
    • Round-Table Discussion on “Corporate Governance Developments in India – Opportunities and Challenges” India-America Chamber of Commerce, New York, USA
    • India Governance & Compliance Update, The Asia Pacific Pharmaceuticals Compliance Congress, Shanghai
    • Wilful Default & Cross-Border Asset Recovery - ICC Fraud Net
    • Presentation on Forensic Accounting & Technology led Frauds at SBI Academy, Hyderabad
    • Invited regularly to present on the topic of forensic investigations and fraud prevention at conferences organized by industry bodies and professional institutes such as ICAI, IIA, ISACA, Amcham, CII, FICCI, IOD,VSC, etc.

Deepa Agarwal

B.Com, FCA, DISA, ASA (Australia)

Deepa Agarwal is a Chartered Accountant having bagged 13th and 5th rank at all over India and Northern India levels respectively. She has almost 20 years of experience in serving national and multi-national companies in the areas of Auditing, Accounting, Reporting, Corporate Laws, and other related matters. She has completed Information Systems Audit (ISA) course from ICAI in Sept 2006 and a Certified course on IFRS from the ICAI, New Delhi in March 2011. She is an Associate Member of CPA Australia also. She has worked with the Technical Directorate of ICAI for around 5 years and was closely involved in the preparation of various publications such as Guidance Note on Companies (Auditor’s Report), 2020, Implementation guide on Auditing and Reporting Standards, Implementation guide on Key Audit Matters and other information, Guide to physical verification of inventory under COVID 19, Guidance note on reporting in company prospectus, Background material on AS 16, Technical Guide on Accounting and Auditing issues in Chit fund, Technical Guide on internal auditing in case of intangible assets. She has been working with renowned multinational consultancy firms for almost 16 years in a technical role dealing with accounting, auditing, reporting, Companies Act, risk management, and quality-related matters.

She was a special invitee on AASB of the ICAI for two years and is a special invitee on Corporate Laws & Governance Committee of the ICAI. She has worked extensively on publications, projects, and Assurance Standards with the various Committees and Boards of the ICAI

She has authored three publications titled:

    • ‘The Law & Practice of Financial Reporting Requirements and Auditor’s Responsibilities under Companies Act, 2013’ released in June 2016, 2017 and January 2018.
    • ‘A complete Guide to Interim Financial Reporting’ released in January 2017.
    • ‘Complete Guide to Director’s Roles, Responsibilities & Liabilities under Companies Act, 2013’ released in February 2021.

She has worked extensively on the preparation of comments, guidance, and presentations on the Companies Bill and Companies Act, 2013. She acted as a faculty member for the ICAI course organised by Ind-AS IFRS Implementation Committee, Centre for Audit Quality, Committee for members in practice, Women Empowerment Committee and Board of Studies. She acted as a speaker in seminars on accounting, auditing and Companies Act matters at various forums including ICAI and C&AG. She has imparted multiple training to Chartered Accountants on Accounting Standards, Ind AS, Auditing Standards, Reporting matters etc. She regularly provides comments on various drafts on documents related to accounting, auditing, and corporate laws issued by ICAI and MCA and works extensively on the issuance of interpretations, opinions, and guidance on related matters. She has authored and contributed various articles published in ICAI Journal, NIRC Journal, Bombay Chartered Accountants Journal, Association of Corporate Advisers & Executives Journal.

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