Forensic forensic Accountant in India. The research of

Forensic Accounting and Frauds in India AbstractForensic Accounting is a part of Accounting of the organization. It is the combination of Accounting, Auditing and investigation skills of a forensic Accountant. It is fact finding, analyzing and interpretation on the frauds. In India, Forensic Accounting is used as an examining tool rather than protective too. If government makes Forensic Accounting compulsory in large companies, many high level scams (frauds) will be controlled. Moreover, economic development will be improved as public money is utilized in proper manner. Forensic accountant is having a powerful intuition for the analysis on the frauds.  Frauds are not only the cash embezzlement but misrepresentation of facts with intention to mislead someone to believe these facts as true, parting with some valuable thing or money belonging to someone after getting induced by relying upon such facts, misappropriation of valuable things of someone, created some misinterpretation of facts which causes loss of money or valuable things of the affected person. The objective is to understand the role of forensic Accountant in India. The research of the same is totally based on secondary data. In order to detect and prevent financial frauds and white collar crimes forensic accounting is making use of various tools. In this paper an attempt has been made to discuss the various types of frauds which are hampering the growth of the economy and the use of Forensic Accounting tools to combat with them.1. Introduction of Forensic AccountingAmerican Institute of Certified Public Accountants (AICPA) defines Accounting as Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part at least, of a financial character, and interpreting the results thereof”. Same way committee has also defines Forensic Accounting as” it is the application of accounting principles, theories and discipline to facts or hypothesis at issues in a legal dispute and includes every branch of accounting knowledge”. The term forensic accounting means financial fraud investigation which comprise of analysis of accounting records to prove or disprove financial fraud and serving as an expert witness in Court to prove or disprove the same. It is the combination Accounting, Auditing along with investigation skills.In the country India we have witnessed some financial frauds in which thousands of crores of public money has been lost. Some of the scams by Harshad Mehta and Ketan Parekh, Satyam Scam, Failure in the nonpayment to financial institutions, frauds through vanishing companies & opening new companies.etc…1.1 Objective of the Research 1. To understand the role of Forensic Accounting in India.2. To enlighten the problems of Forensic accounting in India in the context of growing of multiple frauds. 1.2 Research Methodology: This paper is secondary data based. The information is collected through various journals and internet.1.3 Types of Frauds Fraud is not only a theft of assets but also an attempt to conceal it. Misappropriation of assets without an attempt to conceal is merely a theft, which is usually uncovered quickly through normal checks and balances procedures. Concealment distinguishes fraud from theft. The FBI characterizes fraud as comprising of deceit, concealment, and or violation of trust. Fraud is not usually dependent on the application or threat of physical force or violence. The FBI has recently investigated and prosecuted many financial crimes, including corporate fraud, securities and commodities fraud, health care fraud, financial institution fraud, mortgage fraud, and others. Below enlisted frauds are done by businessman himself or by the employees to benefit themselves.Personal use of business resources, Drawing up financial statements of the business falsely, Embezzlement of the money during its collection but before it is recorded in accounts, Creating fictitious debts and having payments done in favor of oneself, Giving discount improperly or without authority, Creating ghost suppliers and having payments made in their favor, Inventory and scrap theft, Office supplies and fixed asset theft, Creating fictitious expenses and obtaining disbursements, Padding expense items, Creating ghost employees and embezzling their wages/salaries, Accepting bribes from the customers and suppliers of the business with various reasons, using credit cards of the business for personal objectives, Benefiting from overstated personal expenditures, Manipulating the overtime periods and obtaining extra payment, Benefiting from reimbursement in travel expenses, Selling business assets under the market value, Increasing the market value of the business, Stealing the cheques of business, Tampering the bank records and taking monetary advantage, Gaining advantage through forgery of documents, Making payments which should not be made or previously made1.4 Symptoms of Frauds: The word “symptoms”, it is a physical or mental feature which is regarded as indicating a condition of disease” likewise we can also make a judgment regarding business condition whether it is improving or deteriorating. There are two types of symptoms of frauds: Internal and external symptoms. Internal symptoms are the within organization and external are outside the organization means without having any kind of knowledge to the owner of the business.Internal symptoms are: Delay in finalization of accounts, frequent changes in Accounting Policies, Continuing Losses, over drawl of loans or advances, higher cost per unit of production, High amount of losses or wastage shown in books Vs Norms, High investment in group companies, Profit not supported by increased cash availability.External symptoms are:  Delayed submission of returns information etc., Delayed remittances into Bank, Delay or non preparation of Bank reconciliation statements, Lifestyle of promoters/directors and key employees, Continued internal control lapses and not following norms of corporate governance.1.5 Situation of frauds in India : Gross negligence non – compliance with established prudent procedures, Excessive trust on customers/clients, Willingful violation of systems & procedures, Failure of internal control mechanism, Delays in reconciliation of inter branch accounts, Lack of strictness in control on assets of the company, Access of the business bank records to the outsiders.Scams in IndiaScandal Year reported Scope Key Players SummarySatyam Scam 2009 Rs.14000 crore Ramalinga Raju & his family, CFO & other top level management, Auditors & Board of Directors. Falsified revenues, margins and cash balance, operating profit artificially boosted from 61 crores to 649 crores,2 G Spectrum 2010 Rs. 1760 Billion A Raja, MK Kanimozhi, Nira Radia, Many Telecom Cos. Irregularities in awarding spectrum licenses. License issued on first cum first serve basis instead of auction. Advancing of cutoff date which is illegal.Common wealth games 2010 Rs. 35000 crore Suresh Kalmadi & other organizing committee members, 2 private companies & Govt officials Allegations of corruptions and mismanagement by the organizing committee, delay in the construction of main venue leading to misuse of funds, infrastructural compromise, hefty payments made in the name of non-existing partiesUttar Pradesh NRHM scam 2010 Rs.10,000 crores Mayawati, Babu singh Kushwaha Top politicians and bureaucrats are alleged to have siphoned off a massive sum estimated at (US$1.6 billion) from the National Rural Health Mission, a central government program meant to improve health care delivery in rural areas.Indian Coal Allocation scam 2012 Rs. 1.86 lacs crore Comptroller and Auditor general of India, the coal Ministry, many electric boards & private companies. Coal blocks allotted, not auctioned, leading to estimated losses as per the Comptroller and Auditor General of India.VVIP Chopper deal scam 2013 Rs. 363 crores Augusta Westland Company, Former IAF chief SP Tyagi & his cousins, politicians, Govt officials & several Middlemen. It has been alleged that former IAF chief has accepted bribes to win contract worth Rs. 36 Billion.Source: International journal of innovative research & development2. Industries at Risk – PwC 2014 Global Economic Crime SurveyBy Industry, economic crime is most commonly reported in the financial services, retail and customers, and communications sector. Nearly 50% respondents in each said they had been crime victims. Source:  PwC 2014 Global Economic Crime survey.3 Steps involved in fraud Investigation• Findings of documents are corroborated by oral examination ofPersons involved in preparation of the documents and running the affairs of the company.• Based on these documentary &oral evidence as well as expert opinion proceedings are initiated in Court of law/competent authorities.3.1 Methods to detect frauds as a Forensic Accountant.Forensic accountants are accountants that have specialized training and often receive special designations such as Certified Fraud Examiner (CFE) by the Association of Certified Fraud Examiners, Accredited in Business Valuation (ABV) or Certified in Financial Forensics (CFF) by the American Institute of Certified Public Accountants, and Accredited Senior Appraiser (ASA) by the American Society of Appraisers. The accountant should also be well-versed in legal terminologies and procedures such as the following:• Financial evidence examination• Performing forensic research to trace funds and identify assets for recovery• Using customized software to extract and format the software’s findings• Prepare forensic final reports from the data they would have collected• Be familiar with accounting and auditing standards and protocols• Offer litigation support in the form of acting as an expert witness, (as and when required) backing their statements with graphical representations to support their evidence.There are mainly two key methods for the forensic Accountant to apply for the fraud examination.Direct and Indirect Methods3.1.1 Direct Method: The Direct Method is also called the Transaction Method. It deals with investigating of cancelled cheques, invoices, breach of contract, agreements, investigations into public records, conducting interviews with company employees, creating a cash flow statement over a given period, notices by an accountant, and more. When using the Direct Method of forensic accounting, the accountant may also interview management and employees. 3.1.2 Indirect Method: The indirect method is sub divided in three parts named as 1. Cash T Method which also called as source and application method, 2. The net worth method, 3. The bank deposit method, which are briefly explained as followed: Cash T Method and Source and Application of Funds MethodThe Cash T Method compares cash received to the amount of cash spent. It is used to determine if a company or individual had understated income. Similarly, the Source and Application of Funds Method examines the amount spent on lifestyle versus assets and investments. Both the Cash T Method and Source and Application of Funds Method are easily understood as they compare cash coming in with cash going out.Net Worth MethodThe Net worth Method calculates total assets and subtracts total liabilities of an individual or a company. The resulting number represents net worth. Net worth is compared to reported income over several periods. When there are unreconciled differences, a forensic accountant may pursue investigation of these differences.Bank Deposit MethodThe Bank Deposit Method analyzes total deposits during the year and compares it with total expenses. Transfers between accounts and checks redeposited are subtracted from total deposits for the year to arrive at net deposits. Total cash expenditures for the year are added to net deposits to arrive at total receipts for the year. This number is compared to funds from known sources to determine the total funds from unknown sources. A forensic accountant then will investigate these unknown sources further by interviewing key individuals and tracing, or searching for information, about specific amounts.Research FindingsFrom the above conceptual theory regarding Forensic Accounting I am able to give my review regarding the extent of fraud and corruption in developing economies and the impact of the corrupt practices on the such citizens of the country. Due to Government failure, thousands of crores of public money is lost.Conclusion Forensic accounting in India is relatively a new area of study, a series of working definitions and sharing of corporate experiences should be undertaken and encouraged to ensure a common understanding. It is being used as an investigative tool, rather than a preventive tool. The failure of corporate communication structure has made the financial community realize that there is a great demand for skilled professionals that can identify, expose and prevent structural weaknesses in three key areas: poor corporate governance, flawed internal controls and fraudulent financial statements.