Early warning signals of corporate frauds with specific emphasis on Satyam Scam project have been taken to identify a set of exceptional transactions, that will act as a benchmark for the industry to investigate the financial transactions for the possibility of fraud. The early warning signals of corporate fraud are an indicator for the decision-makers about the wrongdoings in the organization.
This benchmark will help the business in reducing the losses caused to the organization by financially fraudulent activities by addressing the issues of fraud at an early stage. A further project is aimed to create awareness about the opportunities pertaining to forensic accounting and to prevent fraud by understanding the early signs and thereby taking the appropriate action.
On 29th August’2008, we made available the study on Early warning signals of corporate fraud. More than 300 professional Chartered Accountants from India and abroad participated in this and the results of this survey are available in the public domain.
Research on Early Warning Signals
The whole research is divided into two aspects – One is the survey of the Indian forensic accountants and forensic accounting students in India [available for free download] and the second part is the study of the Early warning signals that the various stakeholders of the organizations should know about the frauds. Early Warning Signals are also termed Red Flags in certain parts of the world. This study is the compilation of many such transactions that could act as early warning signals of fraud. There are primarily two types of fraud.
- 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 Fraud in India is a unique collection of transactions in various corporate scenarios. This is the first step towards strengthening the anti-fraud framework in our country.
This research addresses 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 evidence or any trends indicating fraud or cheating, the ministry will have the right to initiate an inspection under provisions of the 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 to Mayur Joshi, chairman, of Indiaforensic, a Pune-based organization engaged in fraud examination and forensic accounting, the early warning signals are divided into two parts globally – warning signals of the frauds done for the company and indicators of the fraud 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 the case of the SMEs the frauds which are committed to evading the taxes. Frauds against the company affect 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 The Early Warning Signals of corporate frauds which also covered the early warning signals in the Satyam fraud which were continuously ignored for a number of years together. This publication has a special emphasis on the Satyam Like frauds. One topic is devoted to the early warning signals that were ignored in the Satyam Fraud.
To facilitate more readers to read this research we have split the research into 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 the Satyam scandal may purchase the Version 2.0.0 of this research.