Top investigators need to check corporate fraud

The recent case of loan default involving IL&FS has roiled the Indian economy and the stock markets over the last few weeks. It has dented the faith of investors not only in the group but in infrastructure finance and NBFCs. The government did take prompt decisive action by setting up a committee of senior corporate leaders, bureaucrats and political leaders to understand the issue and resolve it but it will be sometime before the committee members identify the causes and reasons for the default and deliberate on ways to resolve them.

The government had also tasked the Serious Fraud Investigation Office (SFIO) with investigating the debt-laden case of IL&FS and its subsidiaries. But, the SFIO with little manpower and infrastructure, is already saddled with a lot of cases and a number of corporate and financial frauds cases are pending with it, some of them for a long time now. So, is going to the SFIO the right step for an effective and timely solution in dealing with important cases?

IL&FS is the second high-profile case of corporate fraud to hog the headlines this year after the PNB-Nirav Modi-Mehul Choksi case where investigations are still going on and the accused have fled the country. It is estimated that one in every four organisations is the subject of corporate fraud every year in India. The figure is growing at 10 per cent to 15 per cent, especially in the financial sector. The best way to deal with such cases is to get help from professional fraud investigators to investigate and suggest processes to reduce the incidence of fraud. No matter which sector your business dealings are in, it is just a matter of time before you get to hear of business-related fraud affecting your sector. Technological innovations, competitive business strategies, restrictive government policies, robust regulatory environment and the like make it quite a task to operate businesses optimally. There are those who find it difficult to resist shortcuts and easy money and if such individuals are in responsible positions in your company, a business fraud might be cooking as you read this article.

The presence of multiple departments to take care of different facets of a business has both advantages and disadvantages. On the positive side you have clear lines of demarcation and every person knows his or her exact role in the company. The department heads are responsible for the entire team and they do everything possible to run a good show. Now, on the flip side, the presence of multiple departments in a company almost always leads to stratification of employees into groups i.e. the low wagers and the higher wage earners. Lines of communication are often unclear and if fraud does take place, it may take years to be noticed, by which time the employee might have left the job.

While most business owners understand that fraudulent activities puts the future of the company in peril and obliterate all that they have worked for, they are also of the opinion that if they expose a business fraud, it will bring negative publicity to the company. If the reputation of a company is tarnished, it stands to lose a great deal of credibility and value in the eyes of the customers.

However, there is a way out of this dilemma. There are very capable organisations that deal with corporate fraud as a third party, and their findings are kept a secret, known only to heads of companies concerned – people who can take decisive action. Another benefit of hiring a third party business fraud investigator is that it has no stake in the outcome of the investigation and will not be saddled with the baggage of office politics or have reason to play favourites. With unbiased investigators, you can be pretty sure that the report will be a transparent and honest one, and if there is a fraud, it will be exposed. The IT department in the company can assist the investigator with access to private financial records and files.

To ensure a healthy organisation and to effectively dispel apprehensions and suspicions, it is essential to have the best fraud investigation team for the job. They can conduct a sweep of the business, profile suspect individuals and operations, carry out searches on the database, analyse the data, make internal and external enquiries and visit sites to enable them to prepare questions for the suspects and obtain testimony from witnesses. This usually leads to a confession by the fraudster, and your corporation is better off without him/her.
The author is MD, Netrika Consulting with expertise in fraud investigation