RBI Bank Penalties- What does it mean?

RBI Bank Penalties- What does it mean?

Here comes another burning issue of RBI penalizing Banks for irregularities in their modus operandi.

And the count is not small mind you. It is around 13 banks including co-operative ones.

The CBI has been conducting search and seizure operations and has found irregularities in working requirements and the rules and regulations to be followed and governed by the Supreme regulatory authority that is RBI.

Time and again this issue of Know Your Customer (KYC) not being followed properly has come to the fore front. This time it is coupled with advance import remittances.

Bank of Baroda has a glaring Rs. 6,000 Crore Forex related irregularities. It has been fined to the limit of Rs. 5 Crore, HDFC by Rs. 2 Crore and Punjab National Bank by Rs. 3 Crore.

The fraud involves import payments that never happened in reality for Bank of Baroda.  Work as usual, weak internal controls. Anti- Money laundering channels were bypassed. Timely reporting was not done. The Suspicious Transaction Reporting process to the Financial Intelligence Unit was over looked.

Similarly, for HDFC it involved anti-money laundering guidelines not properly followed and bills of entry for import remittances not being properly accounted for.

Similarly, Rs. 5 Lakhs penalty on the Co-operative City Bank, Guwahati, Rs. 2 Lakhs  on Indapur Urban Cooperative Bank of Pune, Rs. 1 Lakhs on Model Cooperative Urban Bank, Hyderabad.

All said and done this brings further the need of Forensics and Continuous Auditing. Internal Controls are not up to the mark and regulator not being taken seriously.

We need to ensure the following:

·         Vigilance

·         Transparency

·         Timely Reporting

·         Fairness

·         Continuous Audit

·         Independence- Maker Checker

·         Timely Review

·         Fraud Risk Management Procedures

·         Proactive rather than reactive

·         Tone at the top

·         Whistleblower Mechanism

·         Ethical Hotline

·         Internal Benchmark ratings

·         Balance- Quality Vs. Targets

·         Preventive/ Detective Controls

To do post mortem is easy but to nip the matter in the bud is utmost important. At the same time deterrents need to be in place to stop from happening again. It cannot be stressed that if we lose public confidence in the system like this time and again we will not be able to progress and move to a better tomorrow!

Would be sharing further inputs in future articles. For fraud risk awareness training for corporate and write-up please contact me on the below:

Raunaq Chawla

http://raunaqchawla.blogspot.ae/

craunaq.1987@gmail.com

+971-562642495/ +91-9650668585

Happy to help with a smile!

Red Flags: Bribery and Corruption

Red Flags: Bribery and Corruption

Thanks friends for the tremendous response on the blogs written by me. I will continue sharing thought leadership on various topics.

Today I would like to touch upon the aspect of a much prevalent and discussed factor of bribery and corruption in business.

We at Risk Consulting/ Forensic/ AML/ Compliance always look out for “Red Flags” or “Indicators” in lay man language to discover if a fraud or misconduct has happened or about to happen.

Bribery and Corruption as per ACFE can be described as “wrongful use of influence for the benefit of the actor/ other person contrary to the duty or rights of others”.

This includes but not limited to bribery, kickback, illegal gratuity, economic extortion and collusion etc.

The Foreign Corrupt Practices Act of 1977 (FCPA) Act covers bribery and corruption of companies listed on the US stock exchange and is one of the primary acts against which the fraud is dealt with and necessary future course/ action is taken in line with the principles of the act. Facilitation payments no matter how small of value to fasten the work process are also covered under the act.

The Red flags or Indicators to look out for are as follows:

• Something of significant value is requested as a personal favor to get a contract awarded
• Commission paid to carry out/ fasten day to day or normal work
• Foreign travel or meals of family members of a person who can influence some work
• Request for transfer of money to third parties/ own/ family accounts
• Gifts given to influential management persons or government officials
• Kickbacks are disguised as marketing and promotion or miscellaneous expenditure
• Certain expenses mentioned above are much higher in comparison to actual revenue generated
• Request for sexual favors in exchange of work done
• Lifestyle of a person is way beyond the means he has
• Fees given to agents in the process where intermediary actually not required
• Wiring money through offshore/ shell companies

Would be sharing further inputs in future articles. For fraud risk awareness training for corporate and write-up please contact me on the below:

Raunaq Chawla

http://raunaqchawla.blogspot.ae/

craunaq.1987@gmail.com

+971-562642495/ +91-9650668585

Happy to help with a smile!

Case Study- Investigation of Conflict of Interest

Case Study: Investigation of Conflict of Interest

As a forensic auditor, I had the privilege to investigate and gained experience on a case of conflict of interest in the Middle East related to closure of stores at retail major.

The case came to the notice as an incident was raised through a tip off from a team member of the concerned team. It was initiated from the tip saying that the employee responsible for the closure of stores was getting it done through spouse Vendor Company.

The above condition in business terms is commonly known as “Conflict of Interest”: which means having one’s own interest (employee/spouse/immediate family) similar to that of the company one is working for and non- disclosure of same at the time of employment.

Methodology

1. Getting details of the said vendor- on boarding process
2. Study of the process for empanelling vendors
3. Sampling of work done over the tenure of the employee at the firm
4. Comparison of details of the sample and study of competitor quotations
5. Online search and discrete calling to competitor vendors to ascertain details
6. Access to and review of electronic data of the employee (official)- emails and user files
7. Access to HR file of the employee
8. Meeting with the line managers and information to HR before initiating said case

Observations/ Evidence

1. Name of the vendor as per the trade license and employee spouse name in HR file was same
2. Employee had not signed the conflict of interest declaration
3. The process of 3 comparative quotations for a job was not followed
4. Majority of jobs given to spouse vendor as time shortage was quoted to do the job
5. Vendor was shortlisted by employee itself basis 3 quotes. Only selected vendor sent for approval
6. Quotes received from employee were in mails post the team asking for them date and time
7. On printing certain quotes a blank page with single line got printed- Fake/ Falsified quotations
8. Study of the properties of document revealed they were created in Adobe Photoshop
9. Quotes are generally received in unalterable format like PDF or Word unlike editing tools above
10. Properties of the document further revealed common author (spouse vendor) across comparative quotes
11. Interview with employee with HR and line managers led to complete denial of above facts

Recommendation

1. Termination of the employee in light of the corroborated evidence above
2. Background checks should be carried out by manager who approves/ awards
3. Vendor should be shortlisted by approving manager basis all comparative quotes not sole vendor
4. Conflict of interest declaration must for every employee. Yearly renewal for employees having vendor interaction
5. Quotes to be only accepted in unalterable formats- PDF and Word or hard copy of quotes to be filed
6. Manager has to ensure process of 3 comparative quotations to be duly followed before awarding job
7. Documented exception approval from approving manager to be taken in case of need

Would be sharing further inputs in future articles. For fraud risk awareness training for corporate and write-up please contact me on the below:

Raunaq Chawla
http://raunaqchawla.blogspot.ae/
craunaq.1987@gmail.com
+971-562642495/ +91-9650668585

Happy to help with a smile!

Fraud: A reality and need for Forensics!

Fraud in a layman's language is wrongdoing for a selfish motive. Companies like Worldcom, Enron, Xerox, Satyam are few among the numerous examples

The exact definition being: An act carried out with an intent to deceive another to deprive them and gain an unfair advantage. There are 4 important elements:

1. Intent

2. Deceit

3. Deprive

4. Gain an unfair advantage

There is a thin line of difference between "error" and "fraud". A lack of any of the elements above leads to an error which is by nature "unintentional".

Fraud is done due to 3 things, commonly referred to as the fraud triangle:

1. Incentive/ Pressure that prompts (Greed, Lack of Money etc.)

2. Opportunity (Loophole that can be taken advantage of)

3. Rationalization ( Justification as to why one did it)

There are various ways of classifying fraud as internal/ external/ collusive. However, according to the Association of Certified Fraud Examiners (ACFE) the primary body dealing with fraud, it usually falls into the below mentioned categories:

1. Fraudulent Financial Reporting (FFR)

2. Asset Misappropriation (AM)

3. Other Fraudulent Unethical and Illegal Activities (OFUI)

One can be either proactive or reactive about it. 

Proactive

An active approach to say that policies and procedures are written as guidelines and are available at the disposal of the users in the organization.

However, there is a need to monitor and track i.e. audit from time to time whether they are being followed in actual word and spirit.

Here comes into play something called a fraud risk management procedure or forensic: simply termed as "audit with an intent to find fraud is forensic". 

In a nutshell the policies and procedures are studied and discussion with process owners is carried out basis sampling of actual transactions and identifying exceptions with ratings of high/medium/low so as to determine misuse and immediate potential areas to work on

Reactive

A situation/ incident happened and was identified via an employee, internal audit, external audit etc. So now comes the cop robber game without uniform.

To identify the modus operandi and the intent behind. Also corroborating the evidence so as to identify the people involved: employees/vendors/others. 

Getting the confession, taking an action on the erring person, recoveries (if any, tying up with legal, reputation risk to the organization etc.

 ACFE 2016 Report to nations: Important Statistics

1. Organization loss to fraud is pegged at 5% of yearly revenue

2. AM is the highest at 83% of the total cases reported

3. Median duration of a fraud scheme was 18 months. The longer a scheme, the more damage it caused!

4. Approximately 95% perpetrators resorted to means to conceal fraud

5. Tips were the most effective way of reporting fraud, approximately 39%. Organizations who have hotlines benefited most.

Middle East and North Africa fraud costs amounted to $5,00,000. Being the highest at 57% of total revenue in the world!

39% cases in 2016 were not reported for the fear of bad publicity followed by another 35% claiming that internal discipline is sufficient.

56% cases were addressed by an in-house examiner followed by 26% by professional firms.

 In light of these above facts and figures there is a need to identify and combat fraud. The role of the forensic accountant has evolved over a period of time and become important as it goes beyond that of an external/ internal auditors role of just verifying the authenticity of the said statements or risks to the business.

Would be sharing further inputs on future articles. For fraud risk awareness training for corporate and write-up please contact me on the below:

Raunaq Chawla

craunaq.1987@gmail.com

+971-562642495/ +91-9650668585

Happy to help with a smile!