Ethics in Finance

Copyright© Dorling Kindersley India Pvt Ltd
17
Financial Management –
An Overview And Ethical
Perspective
Business Ethics: An Indian Perspective

Financial and management accounting
• Financial Accounting is defined as reporting of the
financial position and performance of a firm through
financial statements issued to external users on a periodic
basis.
• Management or Cost Accounting is the process of
identifying, measuring, analyzing, interpreting, and
communicating information for the pursuit of an
organization's goals.

Financial Management
• Financial management encompasses resource management and

finance operations.
• Resource management is the efficient and effective deployment of
an organization's resources such as financial resources, inventory,
human skills, production resources, or information technology
when needed.
• Financial operations is providing financial advice and guidance,
support of the procurement process, providing pay support, and
providing disbursing support

Ethical issues in Finance
Ethics in finance can be developed around three broad themes:
 In financial markets
 In financial services industry (including banking and
insurance)
 By financial people in organizations

Frauds in the financial sector
Legal authorities define fraud as a crime that “involves the use of

dishonest or deceitful conduct in order to obtain some unjust
advantage over someone else”.
Frauds include:
• Financial services sector, i.e., credit card fraud, cheque fraud and
other types of identify-related fraud;
• Insurance fraud
• Telecommunication-related fraud
• Securities-related fraud
• Computer-related fraud

Types of bank frauds
• Unauthorized extension of credit facilities;

• Pledging of spurious goods;
• Hypothecating goods to more than one bank;
• Inflating the value of goods;
• Removing goods with the connivance or negligence of
bank employees;
• Pledging of goods belonging to a third party;
• Accepting obsolete and inadequate stocks;

Types of bank frauds (Contd.)
• Frauds in deposit accounts are opening of bogus accounts, forging
signatures of introducers, and collecting through such stolen
accounts or forged cheques or bank drafts.
• Frauds are also committed in the area of granting overdraft facility
in the current accounts of customers
• Credit card fraud
• Phishing

Measures against bank frauds
• Prevention of Money Laundering Act, 2002
 Reporting of Cash and Suspicious Transactions
 Types of Reports: Cash Transaction Reports (CTR),
Suspicious Transaction Report (STR), Counterfeit Currency
Report (CCR)
 Reporting to RBI
 Other guidelines are also given under the Act to curb the
menace of money laundering
 Compliance to Anti-Money Laundering Standards
• The Banking Ombudsman Scheme, 2006

Constraints to Ethical Practices in Indian
Nationalized Banks
1. Tenure of CEOs,
2. Remuneration of CEOs and
3. Accountability without autonomy.

Frauds in insurance sector
We can identify three types of fraud in the insurance industry:

1. Internal fraud against the insurer perpetrated by an employee;
2. Policy holder/claims fraud committed against the insurer, in the
purchase and/or execution of an insurance product by obtaining
wrongful coverage or payment; and
3. Intermediary fraud committed against the insurer or policy
holders by intermediaries – independent broker/agent.

Frauds in insurance process
The possibility of fraud is prevalent during any one of the three stages
in the insurance process:
a. Policy Proposal stage;
b. Policy Contract stage; and
c. Claim Process stage.
Frauds are also seen in the non-life insurance sector

Combating insurance fraud
The following measures can be adopted to combat fraud in the

insurance sector:
1.Collection of proper evidence
2.Need for regulation
3.Regulation of allied services
4.Need for judicial co-operation
5.Insurers should aim at conviction

Combating insurance fraud (Contd.)
6.Need for transparency and fairplay

7.Insurers’ coalition
8.Building consumers’ awareness
9.Rewards for whistle-blowers
10.Effective legislation and judicial action

Ethics in Finance

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Copyright© Dorling Kindersley India Pvt Ltd

Business Ethics: An Indian Perspective

Business Ethics: An Indian Perspective

• Financial management encompasses resource management and

Business Ethics: An Indian Perspective

Business Ethics: An Indian Perspective

Legal authorities define fraud as a crime that “involves the use of

Business Ethics: An Indian Perspective

• Unauthorized extension of credit facilities;

Business Ethics: An Indian Perspective

Business Ethics: An Indian Perspective

Business Ethics: An Indian Perspective

Business Ethics: An Indian Perspective

We can identify three types of fraud in the insurance industry:

Business Ethics: An Indian Perspective

Business Ethics: An Indian Perspective

The following measures can be adopted to combat fraud in the

Business Ethics: An Indian Perspective

6.Need for transparency and fairplay

Business Ethics: An Indian Perspective

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