Early Warning Signals of Corporate frauds

Early warning signals of corporate frauds with specific emphasis on Satyam Scam project has been taken to identify a set of exceptional transactions, that will act as benchmark for the industry to investigate the financial transactions for the possibility of the fraud. The early warning signals of corporate frauds is an indicator for the decision makers about the wrongdoings in the organisation.

This benchmark will help the business in reducing the losses caused to the organization by the financially fraudulent activities by addressing the issues of frauds at an early stage. Further project is aimed to create awareness about the opportunities pertaining to forensic accounting and to prevent the frauds by understanding the early signs and thereby taking the appropriate action.

On 29th August’2008 we have made available the study on Early warning signals of the corporate frauds. More than 300 professional Chartered Accountants from India and abroad participated in this and results of this survey are available in public domain.

The whole research is divided in two aspects – One the survey of the Indian forensic accountants and the forensic accounting students in India [available for free download] and the second part is the study of the Early warning signals that the various stake holders of the organisations should know about the frauds. Early Warning Signals also termed as the Red Flags in certain parts of the world. This study is the compilation of many such transactions that could act as the early warning signals of the frauds. There are primarily two types of the frauds.

  • Frauds committed against the business
  • Frauds committed for the business

Learn more about these schemes in the Certified Forensic Accounting Professional Syllabus.

The compilation of Early Warning Signals of Frauds in India is a unique collection of the transactions in various corporate scenario. This is the first step towards strengthening antifraud framework in our country.

This research address symptoms of various fraud schemes which can be sub classified under the above mentioned two schemes.

This research has a national significance and the excerpts of the Economic Times article are provided here for the kind reference.

“According to the initial concept, if the early warning system detects evidences or any trends indicating frauds or cheating, the ministry will have the right to initiate an inspection under provisions of Companies Act, 1956. The data on frauds will also be passed over to various Central government agencies dealing with money laundering, auditing and other financial frauds. According Mayur Joshi, chairman, Indiaforensic Research Foundation, a Pune-based consultancy organization engaged in fraud examination and forensic accounting, the early warning signals are divided in two parts globally – warning signals of the frauds done for the company and indicators of the frauds done against the company. “Frauds broadly covers financial statement frauds like recognizing the revenues too early in the balance sheet in order to meet the analyst expectations or in case of the SME’s the frauds which are committed to evade the taxes. Frauds against the company affects the bottom line of the company, for instance traveling claims, inflation, embezzlement of funds and payroll frauds,” he explained.”

This research is converted into a publication captioned as the Early Warning Signals of corporate frauds which has also covered the early warning signals in the Satyam fraud which were continuously ignored for number of years together. This publication has a special emphasis on the Satyam Like frauds. One topic is devoted for the early warning signals that were ignored in the Satyam Fraud.

To facilitate more readers to read this research we have split the research in two versions. Those interested in understanding the Satyam related warning signals can buy the Version 1.0.0 of the Early Warning Signals of Corporate Frauds which includes the Satyam Story and those not interested in Satyam scandal may purchase the Version 2.0.0 of this research.