Guide to Combat Frauds in India

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Forensic Accounting in India started with just one word – Indiaforensic. Before CA Mayur Joshi, founder of Indiaforensic defined the term in the Indian context, very few knew about this profession. Today, after a decade, frauds and forensic accounting are used as terms substitute for each other. It is really important to understand how they are associated.

There are two pillars of the forensic accounting function. Litigation support and investigative accounting which also means investigating into the books of accounts. In addition to this forensic accounting services are also utilized for fraud prevention and detection. Hence it is essential to understand the threat of fraud in various companies.

Overview of the Business Scenario

Businesses are targets for crime because they have something of economic value. Fraud perpetrators believe that they can successfully steal, compromise, or use some of that value from bank account.

There is virtually no limitation to the means that may be employed to accomplish a criminal objective. The criminal mind is ever alert to seemingly new and unique ways to separate a business from its assets. Crimes that businesses face generally may be categorized as:

  • “Blue-collared crimes,” such as murders, robbery, and burglary.
  • “White-collar crime,” such as fraud, conflict of interest, misconduct, and related financial threats.

Research on Frauds

This post focuses on white-collar crimes. White-collar crimes happen at every level of the economy. Corruption is the most popular business crime in India. This money is eventually sent outside the country which results in Money Laundering. In an interesting study done by the Indiaforensic Center of Studies, efforts were made to quantify the size of money laundering, records of the National Bureau of Crime Records were reviewed and it was observed that the size of Money Laundering in India could be as big as Rs.1555 thousand crores.

In the context of corporate frauds in India, the contribution of the Research studies done by the Indiaforensic Center of Studies plays a significant role. Most of the studies were well-quoted in the Media. These studies always hit the bull’s eye.

Important Statistics on Frauds

Their studies have highlighted the following facts

  • India lost more than $40 Billion to occupational or employee-related frauds
  • In the year 2008, the study highlighted that there are more than 1200 companies listed on the stock exchanges indulging in financial statement manipulations
  • Indian Insurance industry loses more than $6 billion every year, this includes inside and outside frauds in the Life and Non-Life insurance sector
  • There is a persistent shortage of forensic accounting skills and India needs more than 60000 forensic accountants by the end of the year 2015
  • The average Salary of the forensic accountant in India was found to be above Rs. 6.89 lacs in the year 2009.
  • In as many as 80% of the cases, forensic accountants are called to the organization to detect and investigate the financial frauds and in some cases, the services of the forensic accountants are also used for assessing the fraud risks or preventing the frauds.

Fraud is the indivisible part of the function of the forensic accountant and it becomes necessary for forensic accountants to understand the meaning, classification, and symptoms of the various fraud schemes. 

Defining Fraud

In 2013, India changed its Companies Act for the first time in 57 years. The original Companies Act was created in 1956, but it didn’t have a clear meaning for the word “fraud.” The 2013 amendment to the Act brought in important rules about corporate fraud.

The definition of corporate fraud as mentioned in Section 447 can be divided into five components that explain corporate fraud:

“Fraud” in relation to affairs of a company or anybody corporate and includes:

  1. “Any act, omission, concealment of any fact or abuse of position
  2. Committed by any person or any other person with the connivance in any manner
  3. With intent to deceive to gain undue advantage from or to injure the interests of
  4. the company or its shareholders or its creditors or any other person
  5. Whether or not there is any wrongful gain or wrongful loss.

Frauds as per Contract Act

Before the year 2013, only the Contract Act of 1872 had a definition for the word ‘fraud,’ and no other law included it. In India, the Contract Act’s Section 17 gives the meaning of fraud.

Fraud” means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agents, with intent to deceive another party thereto his agent, or to induce him to enter into the contract;

  • The suggestion as a fact, of that which is not true, by one who does not believe it to be true ;
  • The active concealment of a material fact by one having knowledge or belief of the fact;
  • A promise made without any intention of performing it;
  • Any other act fitted to deceive;
  • Any such act or omission as the law specially declares to be fraudulent.

Most Certified Forensic Accounting Professionals agree that fraud encompasses activities involving dishonesty and deception that can drain value from a business, either directly or indirectly, whether or not the perpetrator benefits.

Riskpro Learning offers training to become a Certified Forensic Accounting Professional.

Fraud involves the intent to defraud; that is, the perpetrator relies on his or her deception to accomplish—or hide—the fraudulent activity. Fraud is not accomplished via honest mistakes or errors.

Forms of Fraud

Fraud can happen in many ways and come from different places. Most of the time, it’s employees, customers, or vendors who do it.

To figure out how to deal with fraud, you need to know the threats to your business and why people usually commit fraud. This helps you make a plan to handle fraud and reduce the risk. Hence intention of the person committing the fraud and the financial damage to the victim are two of the most important things to prove fraud in the Indian scenario.

Fraud comes in many different ways and can cause big problems for people and businesses. Fraud includes identity theft, stock market cons, and advance fee schemes. This is when people ask for money upfront, promising you’ll get more money back, but that never really happens. Another type is false statements. This is when someone gives wrong information to trick others.

Agencies like the Federal Bureau of Investigation or Central Bureau of Investigation are important in investigating High yield investment frauds. These pyramid schemes attract regular people by promising big profits. They keep important information hidden and end up causing investors to lose a lot of money.

Identity theft means someone takes your personal information to do bad things, like stealing money from credit card. It can take over your social security number. Insurance fraud is when people lie to get money they shouldn’t get from insurance companies. Moreover, mortgage fraud is when tricky tactics happen in real estate deals. To stay safe and help others, we need to watch out and tell someone if we see anything strange. This stops us and others from becoming targets of this kind of fraud.

Training to Fight Frauds

Indiaforensic provides various certifications, courses and training programs to educate people about fraud in a way that is easy to understand. These courses are made to help people learn about finding, stopping, and looking into different types of fraud.

It offers four important forensic accounting courses. First is a Certified Forensic Accounting Professional. This certification helps you understand how to investigate financial crimes like skimming and embezzlement. So, if you’re interested in fighting financial crimes, becoming a CFAP could be the right path for you.

The second certification is on the stock markets. NSE Academy is the partner for this course. This course focuses on stock market cons and scams. It is video learning course and it discusses latest trends and techniques.

By enrolling in the Certified Bank Forensic Accountant course, you can learn about the common techniques used by fraudsters, the red flags to watch out for, and the best practices to safeguard yourself and your bank against fraud.


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