University of Petroleum & Energy Studies

School of Law

BBA LLB Corporate Law, 3rd Semester

Academic YEAR: 2017-2018 SESSION: Aug-Dec

PROJECT ON
CORPORATE SCAMS AND ACCOUNTING PRACTCIES
Under the Supervision of: Ajit Kaushal

NAME- ESHWAR ENGU NAME- GARIMA SHARMA

ROLL NO. – R760216042 ROLL NO-R760216044
SAP ID- 500055274 SAP ID 500055274

NAME-NANDINI ACHARYA
ROLL NO-R760216069
SAP ID- 500054580
Abstract

Scandals are often the “tip of the iceberg”. They represent the ‘visible’ catastrophic failures. The
increasing rate of white-collar crimes demands stiff penalties, exemplary punishments, and
effective enforcement of law with the right spirit. An attempt is made to examine and analyze in-
depth the scandal, which brought to limelight the importance of “ethics and corporate
governance” (CG). Scandals have proved that “there is an urgent need for good conduct based on
strong corporate governance, ethics and accounting & auditing standards.” The major financial
reporting frauds need to be studied for ‘lessons-learned’ and ‘strategies-to-follow’ to reduce the
incidents of such frauds in the future. The increasing rate of white-collar crimes “demands stiff
penalties, exemplary punishments, and effective enforcement of law with the right spirit.

Keywords:Corporate accounting scandal, , case study, corporate governance, accounting and

auditing standards.
 SYNOPSIS

BACKGROUND

Corporate fraud is the intentional misrepresentation of company financial information or

activities designed to mislead the public and increase the profits of the company. In many cases,
fraudulent activities start out small and are never intended to be ongoing. Thus, it’s difficult to
detect fraud in its early stages. Often the fraud goes on undetected for long periods of time before
the scheme is uncovered by a whistleblower, the lack of planning on the perpetrators part, or the
inabilities of the scheme to keep up with the demands of its expansion.

The government actively tries to prevent fraud with policies, laws, and methods designed to help
law enforcement detect schemes before they blow up. The main body in charge of fraud
prevention in public companies is the SEC.

Accounting practice is the system of procedures and controls that an accounting department
uses to create and record business transactions. Accounting practice should ideally be
extremely consistent, since there are a large number of business transactions that must be
dealt with in exactly the same manner in order to produce consistently reliable financial
statements.

STATEMENT OF PROBLEM:
The project seeks to tell about the present scenario of the laws related to the corporate scams and
frauds. Also, the aim is to understand and to gain deep knowledge about the Corporate Scams
and Accounting Practices.

IDENTIFICATION OF ISSUES

1. What leads to corporate scams?

2. Who is responsible ?

3. How can corporate scams be stopped?

OBJECTIVE OF RESEARCH

The objective of the research is to be able to know what exactly leads to a corporate scam and
what probable measures we can take to eradicate the same.

RESEARCH METHODOLOGY ADOPTED

The research paper makes use of publicly available information on various websites, online
newspapers, journals, commentaries, case laws as well as reports by organization. The research
methodology for the project will be doctrinal as well as descriptive in nature. The source of
knowledge for this project will be including primary as well as secondary resources.

CHAPTERIZATION

1. INTRODUCTION

2. TYPES OF CORPORATE SCAMS

3. CAUSES OF SCAMS

4. WHAT ORGANIZATIONS CAN DO TO PREVENT SCAMS

5. LEADING CORPORATE SCAMS

6. ACCOUNTING PRACTICES

7. CONCLUSION
Introduction:

“FRAUS OMNIA VITIATE” Fraud Vitiates Everything. When fraud is involved in civil
contract or in the establishment of a law, all such laws or contracts are unraveled, made into
nothing at all.Fraud is an overall wonder that influences all landmasses and all segments of the
economy. Fraud envelops an extensive variety of unlawful practices and illicit acts including
purposeful misleading, or misrepresentation. According to the Association of Certified Fraud
Examiners (ACFE), fraud is “a deception or misrepresentation that an individual or entity makes
knowing that misrepresentation could result in some unauthorized benefit to the individual or to
the entity or some other party”. As such, botches are not fraud. Without a doubt, in fraud,
gatherings of corrupt people control, or impact the exercises of an objective business with the
aim of profiting, or acquiring merchandise through illicit or uncalled for implies.

First Principles

• The Biggest Fraud is to cheat oneself

• Rather fail with honor than succeed by Fraud.

• For the most part Fraud in the end secures for its companions repentance and shame.

Associations of different types and sizes are liable to fraud. On various events in the course of
recent decades major public companies have experienced financial reporting fraud, resulting in
turmoil in the capital markets, a loss of shareholder value, and, in some cases, the bankruptcy of
the company itself.

India is on the top 10 list of the corrupted countries in the world. There are many cases where the
companies of india has done some scams in the accounting practices and lost its existence and
identity. Corruption and unethical practices in the corporate sectors increased in a significant
manner. These unethical practices and scandals are done by the people who are employed in the
corporate sector like some of the managers, promoters, directors who establish and manage the
business and these practices are called corporate scandals. In India, some of the anti fraud
legislations are Indian Contract Act 1872, Indian Penal Code, Prevention of Corruption Act, Prevention
of Money Laundering Act, The Companies Act 1956, Clause 49 of Listing Agreement,CARO 2003.
SOME TYPES OF CORPORATE SCANDALS:

 Falsification of Accounts

Many of the companies are been found that they are induldged in falsification of the accounts,
financial statements who do not show the actual picture of the companys financial status. Share
holders, bankers and other stake holders are victims of these practices. Some of the methods are

1. Indicating fake and excess costs in the books of accounts.

2. Making counterfeit sections in the books of account with some extreme intention.

3. Undervaluation or over valuation of stock.

4. Charging too much low or high deterioration keeping in mind the end goal to blow up or
diminish ventures.

5. Over valuation or under valuation of resources

6. Over valuation or under valuation of liabilities.

7. Making invented sections of advances from promoters or executives to course dark cash.

 Under invoicing

Importers are required to pay custom obligation on imported merchandise for the most part as
per the estimation of imports. Importers request that the exporters indicate low costs of products
in the invoice to limit custom obligation installment. The distinction between real costs and costs
appeared in invoice is transmitted to exporters through unlawful means. In such cases, custom
authorities are additionally influenced to get leeway of imported merchandise that is bribed.

 Over invoicing
Exporters get money and other motivations from the Government as mean of fare advancement.
A few exporters overchange in the receipt to assert more prominent measures of motivations.
They adjust remote purchasers at contrast in costs by illicit means. In this way, under invoicing
and over invoicing are outrages embraced by organizations occupied with international trade.

 Tax evasion
Many corporate firms decrease their sales turnover and net profits so as to reduce their tax
liability. tax officials are being bribed for assessing lower turnover and projects. Tax evasion is
more common in case of income tax, sales tax, excise duty and stamp duty.

 Payment Fraud

This type of fraud involves falsely creating or diverting payments. Examples include creating
fake records and bank accounts which enable the fraudulent payments to be made. Other
examples include generating false payments, making fraudulent payments to oneself,
intercepting and altering payee details, and amounts on cheques and other forms of payment
order and attempting to then bank those payments and processing false claims by accomplices
for later repayments.

 Pyramid or Ponzi Schemes Fraud

These well-known types of fraud involve a non-sustainable business model in which the
investments of later investors are used to pay earlier investors, giving the appearance that the
investments of the initial participants dramatically increase in value in a short amount of time.
These types of frauds often appear at the outset of a recession when investors want to remove
their money from the scheme, leading to its sudden collapse and exposure.

 Long and Short Firm Fraud

This type of fraud occurs when an apparently legitimate business is set up with the intention of
defrauding its suppliers and customers. This may be after the business has developed a good
reputation and credit history (long-firm fraud) or when the apparent business has only been in
operation for a few months (short-term fraud, often internet-related).

 Insolvency and Bankruptcy Related Fraud

Insolvency related fraud occurs when a company is trading fraudulently and often takes place
prior to the anticipated insolvency of the company. Directors (or shadow directors) often set up
phoenix companies just prior or after the insolvency of the first company with a view to taking
assets from the first company and avoiding paying its debts at the same time. However, there are
various provisions of the Insolvency Act which allow liquidators and / or creditors to take action
against those individuals personally who try and shelter behind the corporate veil of the
company.

Although bankruptcy applies to the financial status of an individual the victims are often the
businesses that have provided the individual with credit (e.g credit card companies, hire purchase
providers, store cards and personal loan companies).

CAUSES OF CORPORATE SCANDALS

 Greed
The inclination to acquire cash and progress toward becoming rich overnight is the greatest
reason for embarrassments. Many individuals do not have the tolerance what's more, the will to
buckle down. They incline toward an easy route to have riches and status in society. They
receive illicit and solitary practices to satisfy their want.

 Lack of Morality
The declining levels of profound quality and morals in the public eye is another significant
reason for corporate embarrassments. Ordinary citizens copy their good example (eg lawmakers,
film stars, sports stars). At the point when these part models enjoy unscrupulous practices,
individuals additionally wouldn't fret degenerate conduct.

 Lack of Transparency
When the system is not transparent dishonest people get an opportunity to indulge in corrupt
practices to achieve their narrow selfish goals.

 Loopholes in law
Corporate embarrassments multiply in a society where legal machinery is over burdened or
troubled and the casualties get equity after colossal postponement. At the point when guilty
parties are definitely not indicted for illicit and withdrawn activities, they are not reluctant to
confront the outcomes and others get consolation to infringe upon the law.
METHODS OF PREVENTING CORPORATE SCANDALS : LEGAL MEASURES

1. The prevention of corruption Act, 1988. It gives out fines and punishment to corrupt official
officers.
2. The companies Act, 1956 – The law tries to check mal practices in the promotion and
management of company.
3. The prevention of money laundering Act. This Act is designed to prevent money laundering.
4. The foreign exchange management Act. This checks irregularities in foreign exchange
transaction.

Consequences of Fraudulent Reporting

Deceitful budgetary detailing can have critical con-successions for the association and its
partners, and additionally for open trust in the capital markets. Periodic high profile instances of
fake money related revealing additionally raise worries about the believability of the US
financial detailing procedure and raise doubt about the parts of administration, reviewers,
controllers, and investigators, among others. In addition, corporate extortion impacts associations
in a few zones: budgetary, operational and mental. While the fiscal misfortune owing to
misrepresentation is significant, the full effect of extortion on an association can stun. In
reality, the misfortunes to notoriety, generosity, and client relations can pulverize. At the point
when deceitful budgetary announcing happens, genuine outcomes follow. The harm that
outcome is additionally boundless, with an a few times decimating "swell" impact. Those
influenced may extend from the "quick" casualties (the organization's investors and loan bosses)

HOW MANAGEMENT ENCOURAGES FRAUD

 Responsibility, accountability and authority not established or documented.
 Goals and objectives neither established nor monitored for success.
 No written policies or procedures
- low priority for the establishment of internal controls
- no separation of duties
- inadequate cash controls - documents –
- inadequate physical security for assets and records
- no independent inventory of assets
 Inconsistent application of policies or procedures may result in unfair
  Treatment of employees leads to favoritism and creates low morale

WHAT AN ORGANISATION CAN DO

• Tone at the top; create an ethical environment
• Lead by Example
• Corporate Code of Conduct
• Call in Services for reporting unethical practices
• Reliable Internal Controls
• Training Courses on
- Ethics Training
- Internal Controls
- Fraud Prevention
- Technological and business changes
- Special training for monitors
• Reference Checks on New Employees
• Code of Sanction for Suppliers/Contractors

Adopt Anti Corruption & Anti Bribery practices as a process

• Assessment of specific corruption risks of the business.
• Development of detailed anti corruption and bribery policies .
• Implementation of the policies.
• Self monitoring of the effective implementation of the policies.
• Reporting on the policies and related programmes.
• Independent assurance of the effectiveness of these efforts.

Developing Code of Governance

Working together with civil societies, government and private sector to develop and disseminate
anti corruption messages. Regional and international initiatives provide a forum for private
sector, public sector, and civil society to come together with a common goal of reducing
vulnerability to corruption . Finally, attitudinal change is necessary. By changing our thoughts,
we can change our attitude and thereby change our behavior, which can change our lives. The
quality of our thoughts equals the quality of our lives. Let us all work towards changing our
attitude towards corruption. Lets say No to corruption
Key principles for proactively establishing an environment to effectively manage an
organization’s fraud risk include:

Principle 1: As part of an organization’s governance structure, a fraud risk management

program6 should be in place, including a written policy (or policies) to convey the
expectations of the board of directors and senior management regarding managing fraud
risk.
Business stakeholders (e.g., shareholders, employees, customers, vendors, governmental entities,
community organizations, and media) have raised the notice and expectation
of company behavior and company governance practices. Some organizations have
developed company cultures that cover sturdy board governance practices, including:
• Board possession of agendas and data flow.
• Access to multiple layers of management and effective management of a whistle
blower hotline.
• Independent nomination processes.
• Effective senior management team (including chief officer (CEO), chief money handler, and
chief in operation officer) evaluations, performance management, compensation, and
succession coming up with.
• A code of conduct specific for senior management, additionally to the organization’s code of
conduct
• sturdy stress on the board’s own freelance effectiveness and method through board
evaluations, governmentsessions, and active participation in oversight of strategic and risk
mitigation efforts.

These company cultures additionally embody board assurance of business ethics concerns in
hiring, evaluation, promotion, and remuneration policies for workers additionally as
ethics concerns altogether aspects of their relationships with customers, vendors,
and alternative business stakeholders. Effective boards and organizations willaddress problems
with ethics and also the impact of moral behavior on business strategy, operations,
and longsurvival. the extent of board and company commitment to those areas varies wide and
directly affects the fraud risk profile of a corporation. Effective business ethics
programs will function the muse for preventing, detecting, and deterring fallacious and criminal
acts. associate organization’s moral treatment of staff, customers, vendors,
and alternative partners can influence those receiving such treatment. These ethics
programs produce associatesurroundings wherever creating the proper call is implicit. The laws
of most countries disallow felony, corruption, and plan fraud. Government laws worldwide
have redoubled criminal penalties which will be levied against firms and people World Health
Organization participate in fraud schemes at the company level, and civil settlements brought by
shareholders of public firms or lenders have rocketed to record amounts. Market capitalizations
of public firms drop dramatically at any hint of economic scandal, and likewise,
customers penalize those companies whose reputations arflyblown by indications of harmful
behavior. Therefore, it ought to be clear that organizations got to reply to such
expectations, which the board and senior management are going to be command in charge
of fraud. In severalorganizations this can be managed as a part of company governance through
entity-level controls, as well as a fraud risk management program.

Fraud Risk Management Program components

Most organizations have written policies and procedures to manage fraud risks, like codes of
conduct, accountprocedures, and incident investigation standards. they sometimes have some
activities that management has enforcedto assess risks, guarantee compliance, establish and
investigate violations, live and report the organization’s performance to acceptable stakeholders,
and communicate expectations. However, few have developed a pithy outlineof those documents
and activities to assist them communicate and judge their processes. we have a tendency to sit
down with the combination of those because the fraud risk management program
(“program”), although the organization has not formally selected it intrinsically.
it's management’s right, with oversight from the board, to see the sort and format of
documentation it needs to adopt for its program. advised formats include:
• A single comprehensive and complete document that addresses all aspects of fraud risk
management (i.e., a fraud management policy).
• A transient strategy define accentuation the attributes of fraud management, however feat the
look of specific policies and procedures to those to blame for business functions among the
organization.
• An define, among an impact framework, referencing relevant policies, procedures, plans,
programs, reports, and accountable positions, developed by the organization’s head workplace,
divisions, or subsidiaries.
whereas every organization must think about its size and complexness once crucial what form
of formal documentation is most acceptable, the subsequent parts ought to be found among a
fraud risk management program:

Commitment

The board and senior management ought to communicate their commitment to fraud risk
management. One techniquewould be to infix this commitment within the organization’s values
or principles and code of conduct. Another technique is issue a brief document (e.g.,
letter) created obtainable to any or all staff, vendors, and customers. This outline document ought
to stress the importance of fraud risk mitigation, acknowledge the organization’s vulnerability to
fraud, and establish the responsibility for every person among the organization to support fraud
risk management. The letter ought to be supported or authored by a
senior government or member, provided to staff as a part of their orientation method, and
reissued sporadically. The letter may function the muse for, and should be the manageroutline of,
a fraud management policy.

Fraud Awareness
An current awareness program could be a key enabler to convey fraud risk management
expectations, additionally as a good preventive management. Awareness of fraud and
misconduct schemes is developed through periodic assessment, training, and frequent
communication. associate organization’s fraud risk management program can assist the
organization with fraud awareness. Documentation to support fraud awareness ought
to outline and describe fraud and fraud risks. It ought to additionally offer samples of the
kinds of fraud that might occur and establish potential perpetrators of fraud. once planning fraud
awareness programs, management ought to think about World Health Organization ought
to attend, frequency and length, cultural sensitivities, steerage on a way to solve moral dilemmas,
and delivery ways. Management ought to additionally think about the coaching desires of the
board or board committee members.

Continuous observance

The fraud risk management program, as well as connected documents, ought to be revised and
reviewed supportedthe dynamical desires of the organization, recognizing that documentation is
static, whereas organizations ar dynamic. Fraud risk management program documentation ought
to be updated on associate current basis to mirror current conditions and to mirror the
organization’s continued commitment to the fraud risk management program.

Process analysis and Improvement (Quality Assurance)

Documentation ought to describe whether or not, and/or how,

management can sporadically judge the effectiveness of the fraud risk management program and
monitor changes. it should embody the requirement for measurements and analysis of statistics,
benchmarks, resources, and survey results. The results of this analysis ought
to be reportable to acceptable oversight teams and be utilized by management to enhance the
fraud risk management program.

Principle 2: Fraud risk exposure should be assessed periodically by the organization to

identify specific potential schemes and events that the organization needs to mitigate.
Regulators, skilled standard-setters, and enforcement authorities have stressed the crucial role
risk assessment plays in developing and maintaining effective fraud risk management programs
and controls. Organizations will determineANd assess fraud risks in conjunction with an overall
enterprise risk assessment or on a complete basis.
steerage for conducting a fraud risk assessment is provided during this section of the guide.
Organizations will tailor this approach to satisfy their individual desires, complexities, and goals.
the muse of an efficient fraud risk management program ought to be seen as a part of a
bigger enterprise risk management (ERM) effort and is unmoving in an exceedingly risk
assessment that identifies wherever fraud couldoccur and United Nations agency the
perpetrators could be. to the current finish, management activities must always think
about each the fraud theme and also the people at intervals and out of doors the
organization United Nations agency can be the perpetrators of every theme. If
the theme is conniving , preventive controls ought to be increased by detective controls, as
collusion negates the management effectiveness of segregation of duties.
Fraud, by definition, entails intentional misconduct, designed to evade detection. As such, the
fraud risk assessment team ought to have interaction in strategic reasoning to anticipate the
behavior of a possible fraud wrongdoer. Strategic reasoning, that is additionally vital in coming
up with fraud detection procedures that a wrongdoer might not expect, needs a skeptical mental
attitude and involves asking queries such as:
• How may a fraud wrongdoer exploit weaknesses within the system of controls?
• How may a wrongdoer override or circumvent controls?
• What may a wrongdoer do to hide the fraud?
With this in mind, a fraud risk assessment usually includes 3 key elements:
• Identify inherent fraud risk — Gather data to get the population of fraud risks that would apply
to the organization. enclosed during this method is that the specific thought of every kind of
fraud schemes and scenarios; incentives, pressures, and opportunities to commit fraud; and IT
fraud risks specific to the organization.
• Assess probability and significance of inherent fraud risk — Assess the relative probability and
potential significance of known fraud risks supported historical data, acknowledged fraud
schemes, and interviews with employees, together with business method homeowners.
• Respond to moderately seemingly and vital inherent and residual fraud risks — Decide what
the response ought tobe to handle the known risks and perform a analysis of fraud risks
over that the organization needs to implement controls or specific fraud detection procedures.

Fraud Risk Identification

Once assembled, the chance assessment team ought to bear a group action activity to spot the
organization’s fraud risks. Effective group action involves preparation before of the meeting, a
pacesetter to line the agenda and facilitate the session, and openness to concepts relating
to potential risks and controls . group action allows discussions of the incentives, pressures, and
opportunities to commit fraud; risks of management override of controls; and therefore
thepopulation of fraud risks relevant to the organization.Other risks, like regulative and legal
misconduct and name risk, furthermore because the impact of IT on fraud
risks additionally ought to be thought of within the fraud risk identification method.
The organization’s fraud risk identification info ought to be shared with the board or audit
committee and comments ought to be invited. The board additionally ought to assess the
implications of its own processes with regard to its contribution to fraud risk, together
with incentive pressures.

Incentives, Pressures, and Opportunities

Motives for committing fraud area unit varied and various. One govt could believe that the
organization’s business strategy can ultimately achieve success, however interim negative
results have to be compelled to be hid to allowthe strategy time. Another desires simply many a
lot of pennies per share of financial gain to qualify for a bonus or to fulfill analysts’ estimates.
The third govt purposefully understates financial gain to avoid wasting for a period of time.
The fraud risk identification method ought to embrace associate degree assessment of the
incentives, pressures, and opportunities to commit fraud. Incentive programs ought to be
evaluated — by the board for senior management and by management for others —
on however they will have an effect on employees’ behavior once conducting business or
applying skilled judgment (e.g., estimating debt allowances or revenue
recognition). monetary incentives and therefore the metrics on that they're primarily
based will give a map to wherever fraud is possibly to occur. There might also be business
enterprise incentives, like once associate degree worker records a fictitious group
actiontherefore he or she doesn't need to make a case for associate degree otherwise unplanned
variance. Even maintaining the established order is usually a strong enough incentive for
personnel to commit fraud.
additionally vital, and sometimes more durable to quantify, area unit the pressures on people to
attain performance or alternative targets. Some organizations area unit clear, setting specific
targets and metrics on that personnel aremeasured. alternative organizations area unit a lot
of indirect and refined, counting on company culture to influence behavior. people might
not have any progressive financial incentive to fraudulently alter a group action, howeverthere is
also ample pressure — real or perceived — on associate degree worker to act fraudulently.
Meanwhile, opportunities to commit fraud exist throughout organizations and will be reason
enough to commit fraud. These opportunities area unit greatest in areas with weak internal
controls and a scarcity of segregation of duties. However, some frauds, particularly those
committed by management, is also troublesome to observe as a result
ofmanagement will usually override the controls. Such opportunities area
unit why acceptable watching of senior management by a robust board and audit committee,
supported by internal auditing, is crucial to fraud risk management.

Risk of Management’s Override of Controls

As a part of the chance identification method, it's vital to contemplate the potential for
management override of controls established to forestall or observe fraud. Personnel inside the
organization typically grasp the controls and commonplace operative procedures that area unit in
situ to forestall fraud. it's affordable to assume that people UN agency area
unit resolute committing fraud can use their information of the organization’s controls to try to
to it in a very manner that may conceal their actions. for instance, a manager UN agency has the
authority to approve new merchandisers could produce and approve a fictitious vendor so submit
invoices for payment, instead of simplysubmit false invoices for payment.
Hence, it's additionally vital to stay the chance of management’s override of managements in
mind once evaluating the effectiveness of controls; associate degree anti-fraud
control isn't effective if it will be overridden simply

Principle 3: Prevention techniques to avoid potential key fraud risk events should be
established, where feasible, to mitigate possible impacts on the organization.

Fraud Preventive Controls interference is that the most proactive fraud-fighting live. the
look associated implementation of management activities ought to be a coordinated effort
spearheaded by management with an assembled forged of staff. put together, this cross section of
the organization ought to be able to address all of the known risks, style and implement
the management activities, and make sure that the techniques used square
measure adequate stop fraud from occurring in accordance with the organization’s risk
tolerance. thirty one the continued success of any fraud interference program depends on its
continuous communication and reinforcement. Stressing the existence of a
fraud interference program through a large kind of media — posters on bulletin boards,
flyers enclosed with invoices and merchant payments, and articles in internal and external
communications — gets the message bent on each internal and external communities that the
organization is committed to preventing and deterring fraud.

Human Resources Procedures

An organization associate’s 60 minutes perform will play a very important role in
fraud interference by implementing the subsequent procedures.

Performing Background Investigations

A key business and fraud risk in any organization lies within the individuals employed to
work the business and promoted into positions of trust and authority. For that reason, it's vital to
understand staff so as to guage their credentials and ability, match skills to the duty necessities,
and remember of any problems with personal integrity which will impact their quality for the
position. abundant are often learned concerning a personal through confirmation of labor history
and education given on employment application or résumé or in follow-up with references
provided. it's doable to search out false or embellished info or unrevealed history
and name which will represent exaggerated, and presumably unacceptable, risk. whereas the
organization ought to establish procedures to getample info to assess employment human or
promotion candidate, the character and extent of knowledge which willbe requested from a
prospective or existing worker or obtained severally is ruled by applicable laws
and laws. additional or increased background checking for list or
personal monetary scenario might solely be doable upon receiving the individual’s consent.
Legal counsel ought to be wanted to advise on what background info will and can'tbe
obtained and therefore the acceptable procedures to follow. Background checks ought to even
be performed on new and existing suppliers, customers, and business partners to
spot any problems with monetary health, ownership, reputation, associated integrity which
will represent an unacceptable risk to the business.

Anti-fraud coaching
a corporation will rent or promote competent people World Health Organization, having
undergone acceptablebackground checks, represent a coffee fraud risk. it's doable that
such people have a comprehensive understanding of what fraud is and what its red flags square
measure, associated an appreciation of its potential to devastate a corporation. There mustn't,
however, be associatey exemption from receiving an initial orientation and currenteducation on
the fraud risk management program in situ, notwithstanding the individual’s position within
theorganization. Such education serves to ascertain and reinforce the tone from the
highest concerning the individual’s responsibility and therefore the method to take care
of suspected fraud. thirty two associate organization’s 60 minutes cluster is
commonly answerable for developing and providing the required coaching on the aim of the
fraud risk management program, together with the codes of conduct and ethics, what constitutes
fraud, and what to try to to once fraud is suspected. The effectiveness of
this coaching relies on necessary group action with periodic updates and refresher sessions.

Conducting Exit Interviews

A policy of conducting exit interviews of terminated staff or people who have
resigned will facilitate in eachinterference and detection efforts. These
interviews might facilitate 60 minutes managers confirm whether or notthere square
measure problems concerning management’s integrity or info concerning conditions tributary to
fraud. 60 minutes ought to additionally review the content {and info|and knowledge|and data}
contained in resignation letters as they'll contain information concerning doable fraud and
misconduct existing among the organization.

Principle 4: Detection techniques should be established to uncover fraud events when

preventive measures fail or unmitigated risks are realized.
Organizations will never eliminate the chance of fraud entirely. There ar continuously those
who ar driven to commit fraud, and a chance will arise thereforemeone|for somebody} in any
organization to override an impact or interact with others to try to to so. Therefore, detection
techniques ought to be versatile, adaptable, and unendingly dynamical to satisfy the
assorted changes in risk.
whereas preventive measures ar apparent and pronto recognisable by workers, third parties, and
others, detective controls ar surreptitious in nature. this implies they operate in an
exceedingly background that's not evident within the everyday business surroundings. Such
techniques can usually:
• Occur within the normal course of business.
• Draw on external data to corroborate internally generated data.
• Formally and mechanically communicate known deficiencies and exceptions
to acceptable leadership.
• Use results to boost and modify alternative controls.
Although each organization is prone to fraud, it's not cost-efficient to do to eliminate all fraud
risk. a corporationcould opt to style its controls to notice, instead of stop, sure fraud risks, as
approved by the board. If the calculableprices of planning, implementing, and watching the
controls against fraud — like tools, personnel, or coaching — exceeds the calculable impact
of the chance, they will not be cost-efficient to implement. for instance, a property and
casualty insurance underwriter could set threshold limits on the entire of losses paid and those
reserved on giantpolicies to spot that fraud could also be occurring, instead of relying alone on
the identification of deceitful individual claims. vital detection ways embrace associate
degree anonymous coverage mechanism thirty five (whistleblower hotline), method controls, and
proactive fraud detection procedures specifically designed to spot deceitful activity.

Process Controls
method controls specifically designed to notice deceitful activity, in addition as
errors, embrace reconciliations, freelance reviews, physical inspections/counts, analyses, and
audits. A lack of, or weakness in, preventive controls will increase the chance of fraud and places
a larger burden on detective controls. The a lot of vital the fraud risk, the a lot of sensitive
to incidence (e.g., use of thresholds, performance frequency, and population tested) the
detective management ought to be. the character of fraud risks is such there ought to be a
scientific identification of the categories of fraud schemes that may be perpetrated against
or among the organization to spot the methodmanagements required to cut back and control the
risks. every trade is prone to differing kinds of fraud schemes. The assessment becomes a lot
of cumbersome in organizations that span completely different industries. Organizations with
multiple divisions/business units can ought to initial perform a broad organizationwide
assessment and so perform a lot of careful and centered assessments of individual business
units to spot the mandatory methodcontrols to notice fraud.

Principle 5: A reporting process should be in place to solicit input on potential fraud, and a
coordinated approach to investigation and corrective action should be used to help ensure
potential fraud is addressed appropriately and timely.

Receiving the Allegation

Potential fraud might return to the organization’s attention in some ways, together with tips
from staff, customers, or vendors; internal audits; method management identification; external
audits; or out of the blue. The board ought tomake sure that the organization develops a system
for prompt, competent, and confidential review, investigation, and determination of allegations
involving potential fraud or misconduct. Protocols for the board’s involvement in such cases —
that forty can vary betting on the character, potential impact,
The investigation and response system ought to embody a method for:
• Categorizing problems.
• Confirming the validity of the allegation.
• Defining the severity of the allegation.
• Escalating the difficulty or investigation once acceptable.
• Referring problems outside the scope of the program.
• Conducting the investigation and investigatory.
• Resolving or closing the investigation.
• Listing varieties of data that ought to be unbroken confidential.
• Defining however the investigation are documented.
• Managing and holding documents and data.
the method approved by the board ought to embody a chase or case management system within
which all allegations of fraud area unit logged. selected senior management approved by the
board and therefore the board itself could also be given access to the current system if
necessary to make sure that acceptable action is being taken.

Evaluating the Allegation

Once Associate in Nursing allegation is received, the organization ought to follow the
method approved by the board to guage the allegation. the method ought
to embody designating a private or people with the required authority Associate in Nursingd
skills to conduct an initial analysis of the allegation and verify the acceptable course of action to
resolve it. In cases that involve the board or senior management, the board might want to
rent outside freelanceadvisers to help during this analysis.
The allegation ought to be examined to work out whether or not it involves a possible violation
of law, rules, or company policy. betting on the character and severity of the
allegation, different departments might have to be consulted, such as HR, legal counsel, senior
management, IT, internal auditing, security, or loss bar. The organization’s external
auditor should even be suggested of any fraud that might have an effect on the
organization’s moneystatements.
If Associate in Nursing allegation involves senior management, or if the allegation affects
the money statements, there could also be standards, laws, or laws that need that others (e.g.,
audit committee, board, external auditors, counsel) be notified of the allegation. as an example, if
the allegation relates to misconduct involving the business executive, the board ought to be
notified of the allegation and may make sure that the business executive isn't overseeing the
investigation.

Investigation Protocols

Investigations ought to be performed in accordance with protocols approved by the board. a

uniform method for conducting investigations will facilitate the organization mitigate losses and
manage risks related to the investigation
EAST INDIA COMPANY FRAUD

Fraudulent Financial reporting and corrupt business practices having its existence since the era of
footprints of Public corporation. It was the first multinational corporation in the world and the
first company to issue stock. In the late 1700s Edmund Burke had Robert Clive, “the founder of
the empire” and Warren Hastings, India’s Governor-General, brought up on impeachment
charges laden with corruption issues. Though the trials failed to convict anybody. The Company
was subsequently wound up under the East India Company Stock Redemption Act, 1874.

MUNDHRA SCANDAL

Today, we see scams worth thousands crores of rupees happening in India. But exactly 59 years
ago in 1957, took place Independent India’s first big financial scam. It was called the Mundhra
Scandal.

Haridas Mundhra, a Calcutta-based industrialist and stock speculator got the government owned
Life Insurance Corporation (LIC) to invest a sum of Rs 1,26,86,100 (one crore, twenty-six lakh,
eighty-six thousand and hundred) in the shares of six of his troubled companies. This investment
was done under governmental pressure and without consulting LIC’s investment committee.

Meanwhile, Feroze Gandhi, son-in-law to the then Prime Minister Jawaharlal Nehru, and a
Member of Parliament from Indian National Congress, demanded an explanation for LIC’s
decision. There was a well-known rift between Mr Gandhi and his father-in-law, which
sensationalized the matter when Feroze Gandhi raised the issue in the Parliament and charged the
principal Finance Secretary, H.M. Patel and Finance Minister, T.T. Krishnamachari of
pressurizing LIC’s investment. He also claimed that he had possession of confidential letters
between Mr. Patel and Mr. Krishnamachari regarding this investment. Seeing such allegations,
Mr. Nehru appointed former chief justice M.C. Chagla as a one-man commission of inquiry.

In one of the most transparent investigations ever, Mr. Chagla worked remarkably fast and
submitted his report in just 24 days. The hearings of the Chagla commission were conducted in
public. Several leading stockbrokers who were in the LIC Investment Committee testified that
the investment could not have been made for the purpose of propping up the market, as was
claimed by the Finance Ministry. They also stated that had the LIC consulted the Investment
Committee, they would have pointed out Mundhra’s forged shares episode from 1956.

After Mr. Chagla filed his report Mr. Krishnamachari resigned from his post of Finance Minister
on February 18, 1958. Mr. Mundhra was also arrested and he went to jail for 22 years.

The speed with which the enquiry was conducted in a transparent manner is commendable,
leading to nabbing of the culprits. In contemporary India, such a case goes on for years, with the
culprits moving freely at large.
ENRON CASE
This is the biggest and most significant case relating to the corporate scams and bad corporate
governance.
Enron was started as a pipeline company by Ken Lay but due to the vision of Mckinsey
consultant, Jeff skilling who put the concept of financial services industry to the not so regulated
gas industry. They acted as an intermediary by setting up a gas bank through which buyers and
sellers of natural gas could communicate and transfer payments. They would provide the
assumed predictable pricing and delivery. After Enron recruited him and then he rapidly built up
a major gas trading operation. Its activities were all over the globe right from south America to
china and also a contract to build plant near Mumbai in India. Enron achieved great national
reputation and it relied on the rapid expansion of its business and its revenue which was growing
at a systematic pace and earnings from trading. while this was going on , Skilling was appointed
Chief Operating Officer by Ken Lay and he then embarked upon transforming the whole of
Enron to reflect his vision. He also took decision to build a water plant in UK as he wanted to
become a global leader. Enron was rapidly growing which was moving away from his hands as
he was not able to fund it and to cover this problem it had secretly created a complex web of off
balance sheet, and this was secured and was dependent on rising share value of Enron.
Enron didn't begin as an unscrupulous business. As we have found for this situation contemplate,
what presented the infection was the quest for personal wealth by means of extremely quick
development. This prompted the presentation of very outrageous motivator plans to pull in and
inspire brilliant and driven individuals, which, thus, prompted an undesirable concentrate short
term income.
This, obviously, implied Enron was not producing satisfactory capital, while spending extremely
on extension, and in the long run it exploded all of a sudden and significantly. Partners of this
creator who met Lay and had dealings with Enron affirm that there was distrust in the market
about Enron's productivity and its money position. Doubts developed that Enron's profit had
been controlled and in pre-fall 2001 it rose that its Chief Finance Officer had secretly made
himself rich to Enron's detriment through the wobbly sheet vehicles. About this time the dotcom
blast finished all of a sudden and for Enron, this harmonized with the global power business
turning out badly, the broadband business being closed down, the water business falling and the
power administrations business getting into genuine inconvenience in California. Enron's offer
value began to slide and Skilling, selected Chief Executive Officer in January 2001, surrendered
in August.

Enron's offer value at that point quickly declined, activating reimbursement provisos in the
financing vehicles which Enron couldn't deal with. Its FICO score went to garbage status, which
caused the offer cost to fall and activated further taking shape of obligation commitments. Banks
denied additionally fund, providers declined to supply and clients quit purchasing.
In December 2001 Enron was filed for the largest bankruptcy the USA has ever seen.
Strategic management

As a McKinsey advisor represent considerable authority in procedure, Skilling had a reasonable

vision, at any rate at first, of what he needed Enron to accomplish. Nonetheless, he wasn't keen
on administration essentially and enabled operational administration to shrivel. In any case, his
vision of a colossal exchanging undertaking wasn't conveyed down to the following level of
creating and executing viable marketable strategies, as prove by his insane dispatch into
broadband, a field in which he had no individual knowledge or experience and in which Enron
had no capacity or probability of raising the assets required to actualize the venture or project.

organisation resourced to convey

Skilling progressed toward becoming COO on the flight of an extremely intense and experienced
antecedent. Indeed, even by then, Enron had been growing at a rate which beat its capacity to set
up fitting and sufficient authoritative frameworks and controls. Added to which it had
dependably been shy of assets. Skilling's absence of enthusiasm for operational administration
implied that on his arrangement at COO, he aggravated a poor circumstance much by making
terrible administrative arrangements. His attention on fast development boosted by exceptionally
liberal remuneration plans, and with lacking spending controls, made an absolutely useless
association.

Transparency and responsibility

From the beginning times, Enron's emphasis on profit and offer value development and the
related budgetary motivations prompted an important absence of straightforwardness as the
figures were fiddled.. One could contend that Enron felt especially responsible to their investors
for conveying reliable better than expected development in Enron's market capitalisation. Be that
as it may, this development was accomplished by subterfuge and misdirection. Positively the
dealings in California were as a long way from transparent as it was conceivable to be.

Daiwa Bank
Toshihide Iguchi was selected to Daiwa Bank in 1976, where he was responsible for exchanging
and for exchanging's bookkeeping of US government bonds. In 1983, he brought about lost
$200 000 on US Treasury securities, yet kept exchanging a push to win back the cash. He
endured advance misfortunes however concealed records and set up together fake archives that
recommended that the bank had securities which he had really sold. This was the biggest
exchanging loss of its kind ever. Toshihide turned into a head of exchanging US government
bonds operations in 1986, in New York, and in 1993 and again in 1994, the Federal Reserve
issued Daiwa with notices about his poor inner control in both exchanging and bookkeeping.

On 18 September 1995 Daiwa Bank answered to the Federal Reserve misfortunes of US$1.1
billion from US treasury bonds in New York, exchanged by Iguchi. He had concealed these
misfortunes for a time of 11 years, effectively keeping them out of the bank's books and outside
its budgetary articulations.

This extensive time of misdirection had been overseen through the liquidation of securities held
in the bank's supervision account and through falsification of its records. On 23 September 1995
a specialist of the Federal Board Reserves talked with Iguchi at a motel, and later captured him.
Daiwa let go Iguchi on 26 September 1995.

On 2 October 1995 US experts requested Daiwa to end the majority of its exchanging the United
States. Iguchi was condemned to four years in jail and a $2.6 million punishment on December
1996. Daiwa consented to offer the vast majority of its benefits and workplaces in the United
States in January 1996. In February of that year, Daiwa consented to pay a $340 million fine to
dodge promote lawful discipline. On 20 September 2000 Osaka court pronounced that some
present and some past board individuals and administrators from the bank would need to pay the
bank $775 million as repayment to shareholders.37, 38

In 2007 Weston cited (Time, 1997) that in a later meeting Iguchi said 'I exchanged similar bonds
for 12 year. It was entirely basic for administration to get it. I had a few chiefs over me who
ought to have caught on. In any case, the New York branch relied upon me so vigorously for
benefits we were creating the greater part their benefits they needed to keep their eyes shut and
they would not like to know anything'.

Barings Bank
The fall of Barings Bank was because of awful budgetary administration practices of Nick
Leeson who hypothesized on the Singapore International Monetary Exchange, commonly
utilizing prospects contracts. In 1989 Leeson was delegated as a settlements assistant in Jakarta.
In 1992 Barings offered him a position in Singapore where he would be in charge of setting up a
fates exchanging operation.

His correct obligations stayed uncertain, however included assessment for both the back office
bookkeeping and control works and also to execute customers' requests. From here Leeson's
unapproved exchanging exercises started. Inside a year, he passed the exam for exchanging on
Singapore International Monetary Exchange (SIMEX) and from there on; he was elevated to
general director and head merchant. Leeson and his merchants performed two sorts of
exchanging: executing fates and alternatives orders for customers or for different firms inside the
Barings association, and arbitraging value contrasts between Nikkei prospects exchanged on the
SIMEX and Japan's Osaka trade. Leeson purchased the shabby contract and at the same time
sold the costly one of every a demonstration of inside and out theory. He took open positions
where a purchase was not coordinated with an offer or the other way around.

In 1992, Leeson built up a mistake account – known as 88888 – to conceal his unapproved
exchanging exercises. He guaranteed that this record was utilized to shroud some humiliating
misfortunes made by his brokers or clients and it was appeared as a client account, not as a
mistake account. He additionally taught his agents not to report the record to London and to
conceal his exercises by controlling the records.

Particular announcing implied that Leeson posted benefits of about $2 million of every 1992 and
about $14 million of every 1993. He got a reward of £36K in 1992, £130K in 1993 and £450K in
1994. There is no evidence that Leeson stole reserves. Or maybe, toward the finish of 1992, he
had disguised lost £2 million: in late 1993 his misfortunes expanded by £21 million and in 1994
by a further £185 million. His aggregate misfortune toward the finish of 1994 was £208 million.

In 1994 Leeson began to take unapproved alternatives positions, especially straddles (a

synchronous offer of a call and a put) on the Tokyo lists. The hazard with this approach was that
it prompted extensive misfortunes if the list fell or rose considerably. On 17 January 1995, a
quake struck Kobe: the Tokyo securities exchange fell strongly, and Leeson's choice position
took misfortunes of about £68 million.

Leeson started to purchase stock file prospects trying to help the market. His aggregate
misfortune was just £253 million, however then the market began to fall once more. He kept on
purchasing more stock file prospects. To cover the misfortune he connected to London for stores
utilizing counterfeit support, and London sent him an aggregate of £742 million of every few
trenches.

On 23 February 1995 he fled from Singapore: the following day, Barings found that Leeson had
brought about misfortunes adding up to £927 million, a total more than twofold the company's
capital of £440 million.The bank was made a beeline for chapter 11 and the Bank of England set
Barings into supervision. In the end ING Bank (International Nederland Group) purchased the
bank for £1, in addition to an imbuement of £660 million to recapitalize the firm as Baring Asset
Management. Be that as it may, it was part and sold by ING (International Nederland Group) to
Mass Mutual and Northern Trust in March 2005.

EMERGENCE OF SATYAM
Satyam was a rising-star in the Indian outsourced IT-administrations industry. The organization
was shaped in 1987 in Hyderabad (India) by Mr. Ramalinga Raju. The firm started with 2 0
representatives, developed quickly as a worldwide business, which worked in 65 nations around
the world. Satyam was the principal Indian organization to be enlisted with three International
Exchanges Satyam was for instance of India's developing achievement; it won various honors for
development, administration, and corporate responsibility. As M. Bhasin remarked, "From
2003͵-2008, in about every monetary metric important to speculators, the organization developed
quantifiably, as abridged Satyam created Rs. 25,415.4 million in complete deals in 2003-04. By
March 2008, the organization deals income had developed by finished three times. The
organization showed a yearly compound development rate of 38% over that period.
Likewise, working benefits, net benefit and working money streams development arrived at the
midpoint of 28, 33 and 35%, individually." Thus, Satyam created critical corporate development
and investor esteem as well. The organization was a main star (and an unmistakable name)in a
worldwide IT commercial center.

Table-1:
Particulars 2003-04 2004-05 2005-06 2006-07 2007-08 Average
Growth
Rate (%)
Net sales 25,415.4 34,642.2 46,343.1 62,284.7 81,372.8 38
Operating 7,743 9,717 15,714.2 17,107.3 20,1857.4 28
Profit
Net Profit 5,557.9 7,502.6 12,397.5 14,232.3 17,157.4 33
Operating 8,165.5 6,386.6 7,868.1 10,390.6 13,708.7 35
Cash Flow
ROCE 27.95 29.85 31.34 31.18 29.57 30
(%)
ROE (%) 23.57 25.88 26.85 28.14 26.12 26

Timeline of Satyam Case

June 24, 1987: Satyam Computers is propelled in Hyderabad
1991: Debuts in Bombay Stock Exchange with an IPO over-subscribed 17 times.
2001: Gets recorded on NYSE: Revenue crosses $1 billion.
2008: Revenue crosses $2 billion.
December 16, 2008: Satyam Computers declares purchasing of a 100 for every penny stake in
two organizations claimed by the Chairman Ramalinga Raju's sons– Maytas Properties and
Maytas Infra. The proposed $1.6 billion arrangement is prematurely ended seven-hours after the
fact because of a revolt by speculators, who contradict the takeover. Be that as it may, Satyam
shares dive 55% in exchanging on the New York Stock Exchange.
December 23: The World Bank bars Satyam from working with the bank's immediate contracts
for a time of 8 years in a standout amongst the most extreme punishments by a customer against
an Indian outsourcing organization. In an announcement, the bank says: "Satyam was
pronounced ineligible for contracts for giving disgraceful advantages to Bank staff and for
neglecting to keep up documentation to help expenses charged for its subcontractors." On the
day the stock drops a further 13.6%, it is most reduced in more than four-and-a-half years.
December 25: Satyam requests an expression of remorse and a full clarification from the World
Bank for the announcements, which harmed speculator certainty, as indicated by the outsourcer.
Strangely, Satyam does not scrutinize the organization being banned from contracts, or request
the denial of the bar, however rather protests proclamations made by bank agents. It additionally
does not address the charges under which the World Bank said it was making Satyam ineligible
for future contracts.
December 26:Mangalam Srinivasan, a free chief at Satyam, leaves following the World Bank's
basic articulations.
December 28: Three more executives quit. Satyam delays an executive meeting, where it is
required to declare an administration shakeup, from December 29 to January 10. The move
intends to give the gathering more opportunity to ponder alternatives past only a conceivable
offer buyback. Satyam likewise names Merrill Lynch to survey 'vital choices to improve investor
esteem.'
January 2, 2009: Promoters' stake tumbles from 8.64% to 5.13% as foundations with whom the
stake was promised, dump the offers.
January 6, 2009: Promoters' stake tumbles to 3.6%.
January 7, 2009: Ramalinga Raju leaves, conceding that the organization swelled its budgetary
outcomes. He says the organization's trade and bank appeared out accounting report have been
expanded and fudged to the tune of INR 50,400 million. Other Indian outsourcers race to
guarantee believability to customers and financial specialists. The Indian IT industry body,
National Association of Software and Service Companies, hops to protect the notoriety of the
Indian IT industry in general.
January 8: Satyam endeavors to pacify clients and speculators that it can stay with the above
water, after its previous CEO admitted to India's greatest ever budgetary trick. Be that as it may,
law offices Izard Nobel and Vianale and Vianale record "classaction suits in the interest of US
investors," in the principal lawful moves made against the administration of Satyam in the wake
of the extortion.
January 11: The Indian government ventures into the Satyam outsourcing outrage and
introduces three individuals to another board in an offer to rescue the firm. The board is included
Deepak S Parekh, the Executive Chairman of homeloan moneylender, Housing Development
Finance Corporation (HDFC), C. Achuthan, Director at the nation's National Stock Exchange,
and previous individual from the Securities and Exchange Board of India, and Kiran Karnik,
Former President of NASSCOM.
January 12: The new board at Satyam holds a question and answer session, where it reveals that
it is taking a gander at approaches to raise stores for the organization and keep it above water
amid the emergency. One such technique to raise money could be to solicit numerous from its
Triple An evaluated customers to make propel installments for administrations.

The Auditors Role and Factors Contributing to Fraud

Worldwide inspecting firm, PricewaterhouseCoopers (PwC), evaluated Satyam's books from
June 2000 until the disclosure of the extortion in 2009. A few pundits scrutinized PwC brutally
to fail to identify the extortion (Winkler, 2010). Undoubtedly, PwC marked Satyam's money
related explanations and was in charge of the numbers under the Indian law. One especially
upsetting thing concerned the $1.04 billion that Satyam guaranteed to have on its asset report in
"non-enthusiasm bearing" stores. As indicated by bookkeeping experts, "any sensible
organization would have either put the cash into an enthusiasm bearing record, or restored the
abundance money to the investors. The expansive measure of money in this manner ought to
have been a 'warning' for the inspectors that further confirmation and testing was vital. Besides,
it creates the impression that the reviewers did not autonomously confirm with the banks in
which Satyam asserted to have stores" (Kahn, 2009). Also, the Satyam misrepresentation
continued for various years and included both the control of adjust sheets and wage explanations.
At whatever point Satyam required more salary to meet investigator gauges, it just made
'invented' sources and it did as such various circumstances, without the inspectors consistently
finding the misrepresentation.

Moreover, PwC evaluated the organization for about 9 years and did not reveal the extortion,
while Merrill Lynch found the extortion as a feature of its due determination in only 10 days
(Thaindian News, 2009). Missing these "warnings" inferred either that the reviewers were
horribly clumsy or in plot with the organization in conferring the misrepresentation. PWC at first
affirmed that it played out the greater part of the organization's reviews in understanding with
relevant evaluating models. A point has additionally been brought about the expansion up in
review expense. A reference to the figures of review expense in correlation with add up to salary
over some stretch of time might be germane. Over a time of four years, 2004-05 to 2007-08, the
review expense expanded by 5.7 times, while add up to pay expanded by 2.47 times amid a
similar period. By the by, it is hard to reach any inference regarding whether the expansion in
review expense was supported or not. Suspiciously, Satyam likewise paid PwC twice what
different firms would charge for the review, which brings up issues about whether PwC was
complicit in the extortion.
Cause behind Satyam
• Fudging of Accounts.
• Over stated Assets of Rs. 490 crore.
• Fake cash balances over Rs. 5,000 crore in the Balance Sheet.
• Interest component of Rs. 376 crore which never flowed into the company’s coffers.
• Understated Liabilities of Rs. 1,230 crore.
Outcome Satyam Case
The news of the fake budgetary detailing rehearses took after by Satyam sent butterflies through
the Indian stock market, and Sensex list fell over 5% and likewise Satyam shares fell by over
70%. Following the stunning exposures by Mr. Raju (Administrator), the dealers counter
observed distracted offering on the bourses and about 143 million offers (or, on the other hand a
fourth of the aggregate 575 million offers) had changed hands lastly, the offers shut down
77.69% atRs. 39.95 at the Bombay Stock Trade (BSE), wiping out Rs.139.15 per share
in a solitary day. After Wednesday's fall, the company'sshowcase esteem has sunk to minimal
more than $500 million from around $7 billion as of late as last June. The stock that hit its
untouched high of Rs. 542 in 2008 collided with an inconceivable Rs. 6.30 on the day Raju
admitted on Jan. 9, 2009. Satyam's shares tumbled to 11.50 rupees on Jan. 10, 2009, their most
minimal level since March 1998, contrasted with a high of Rs. 544 out of 2008. In the New York
Stock Trade, Satyam shares topped in 2008 at US$ 29.10; by March 2009 they were exchanging
around US $1.80. Accordingly, speculators lost $2.82 billion in Satyam. Only a year later, the
trick hit Satyam was gobbled up by Tech Mahindra for a simple Rs. 58 per share– a market top
of simple Rs. 5,600 crore. In the fallout of Satyam, India's business sectors recouped
furthermore, Satyam now lives on. India's stock showcase is as of now exchanging close record
highs, as it gives the idea that a worldwide financial recuperation is taking
put. Common prosecution and criminal allegations proceed against Satyam. As Shubhashish
(2015) closed, "On April 13, 2009, by means of a formal open closeout process, a 46% stake in
Satyam was acquired by Mahindra and Mahindra possessed organization, Tech Mahindra, as a
feature of its broaden in methodology. Successful July 2009, Satyam rebranded its
administrations under the new Mahindra administration as Mahindra Satyam. After a deferral
due to assess issues, Tech Mahindra reported its merger with Mahindra Satyam on 21 March
2012, after the leading body of two organizations gave the endorsement. The organizations are
consolidated legitimately on 25 June, 2013." As D. Winkler [36] states, "With the privilege
changes, India can limit the rate and size of accountingfraud in the Indiancapitalmarkets."

Corporate Goverance needs to be more strong, the Satyam case is simply one more illustration
supporting the requirement for more grounded CG. Every open organization must be cautious
while choosing officials and best level supervisors. These are the general population who set the
tone for the organization: if there is debasement at the best, it is bound to stream down.
Additionally, isolate the part of CEO and Chairman of the Board. Partup the parts, in this
manner, keeps away from circumstances like the one at Satyam.The Satyam Computer Services'
outrage uncovered the significance of morals what's more, its pertinence to corpo-rate culture.
The misrepresentation conferred by the authors of Satyam is a demonstration of the way that "the
study of direct" is influenced in vast by human voracity, aspiration, and want influence, cash,
notoriety and wonderfulness.

Indian Stock Market Scam by Harshad Mehta: Implications

In the mid 1990s, each bank in India should keep up Statutory Liquidity Ratio, i.e. a specific
measure of their stores were to be as government bonds. They were additionally to present an
asset report with full points of interest before the day's over demonstrating the capital that has
been put resources into government bonds. Be that as it may, now the banks just need to
demonstrate their monetary record on Fridays. Alongside this change, a proviso was added by
which through the day by day rate was not required to be above SLR, in any case, the normal
rate throughout the week was important to be above SLR. This new statement enabled the banks
to offer bonds in the start of the week and after that buy them back toward the end.
Implications on the Market
As Harshad Mehta was playing this amusement with every one of the banks he was managing,
he could keep up a working capital in his record constantly. Amid those circumstances, the banks
were not allowed to make interests in value markets. Through his smart aptitudes, Mehta could
grab a few assets from the keeping money framework which he at that point used to put
resources into the share trading system by means of which he figured out how to profit and feed
an enormous blast. He was in charge of taking the ACC cost from 200 to whooping 9000, i.e. an
expansion of 4400%. The whole market was on the ascent. At last, as he was to book benefits, he
sold the stocks on the day the market smashed. Mindful of the way that he would be vigorously
rebuked for composing the check for the sake of Mehta, administrator of Vijaya Bank (one of the
banks being taken care of by Harshad Mehta) submitted suicide. A lesser known reality about the
Indian securities exchange trick by Harshad Mehta is the inclusion of Nimesh Shah who figured
out how to stay under the radar. Shah was correspondingly included, in any case, he kept himself
well out of the hands of the law. Harshad Mehta is presently dead yet Shah still arrangements in
securities exchange and is considered as a substantial player. Thought the Harshad Mehta trick
has not been the main trick in money markets, however its scale shook numerous players. It
additionally appeared to be a lesson for banks to not compose the check in name of the handle
regardless of how believed they were.
SARADHA CHIT FUND SCAM (April 2013)

One of the biggest Ponzi schemes in West Bengal that enjoyed political patronage and lured
millions of investors to deposit money with the promise of abnormally high returns including
fancy holidays etc. The chit fund eventually collapsed leading to defaults after a crackdown by
SEBI and the Reserve Bank of India. The default, apart from leaving small depositors high and
dry, also led to 10 media outlets owned by Saradha being forced to wind up, leaving 1000
journalists jobless.

Current Status-
Various agencies including ED and SFIO are probing the misappropriation of funds. Sudipto
Sen, the Chairman and managing director of the Saradha Group was arrested earlier this year and
the Enforcement Directorate has been granted his custody for interrogation to probe money
laundering. Suspended TMC MP Kunal Ghosh, who was accused by Sen for being involved in
the scam has been called for questioning by SFIO, but not arrested yet. The state had set up a
fund of Rs 500 crore for compensating poor depositors. Of Saradha’s 1.7 million investors, only
1000 depositors were indemnified in September and about 1 lakh were expected to be
compensated before durga puja.

ACCOUNTING PRACTICE

Accounting practice is the system of procedures and controls that an accounting department
uses to create and record business transactions. Accounting practice should ideally be
extremely consistent, since there are a large number of business transactions that must be
dealt with in exactly the same manner in order to produce consistently reliable financial
statements. Auditors rely upon consistent accounting practice when examining a company's
financial statements. Examples of good accounting practice are:

• Always using the same calculation to determine the amount of overtime paid to
employees
• Always issuing billings to customers on the same day that goods are shipped to them
• Always paying supplier invoices on the day when they are due
• Always using the same depreciation method for the same class of fixed assets

The development of a high level of accounting practice calls for the routine examination of
any departures from the mandated process flow, so that errors can be spotted and the
underlying causes corrected. This level of self-examination is only possible if the accounting
staff has a sufficiently high level of training to understand:

• The proper process flow

• When a departure from the authorized process has occurred
• How to devise a systemic correction to an error
• How to ensure that the change is properly implemented in the process on a go-forward
basis

Accounting practice also calls for the continual installation and updating of best practices, so
that both the efficiency and effectiveness of the accounting processes are improved over
time. Doing so calls for additional skills in identifying best practices and in the installation
and monitoring of any changes made.

CONCLUSION

The problem in the Indian corporate sector (be it public sector, the multinational the Indian
private sector ) is that of disciplining the dominant shareholder and protecting the minority.
The problem of corporate governance can be solved only by forces outside the company itself -
the regulator and the capital market.
Regulators can facilitate the process by measures such as ; enhancing the scope, frequency,
quality and reliability of information disclosure promoting an efficient market for corporate
control; reconstructing or privatizing the large public sector institutional investors, and reforming
bankruptcy and related laws.
The newly unleashed force of deregulation, disinter-mediation, institutional-ism, globalization
and tax reforms are making the minority shareholder more powerful and are forcing the
companies to adopt healthier governance practices.