Accounting frauds soar to Rs 1,85,480 crore
By Harini Subramani in Mumbai
IT’S official now. The latest survey on accounting frauds has pegged the fraud level in India at Rs 185,480 crore ($ 40 billion), equivalent to onethird of India’s gross domestic product ( GDP). It also revealed that more than 1,200 Indian listed companies, accounting for around 30 per cent of the total companies, have been indulging in accounting frauds. The survey showed that the manufacturing sector is more prone to fraud than the banking sector.
By Harini Subramani in Mumbai
IT’S official now. The latest survey on accounting frauds has pegged the fraud level in India at Rs 185,480 crore ($ 40 billion), equivalent to onethird of India’s gross domestic product ( GDP). It also revealed that more than 1,200 Indian listed companies, accounting for around 30 per cent of the total companies, have been indulging in accounting frauds. The survey showed that the manufacturing sector is more prone to fraud than the banking sector.
The study conducted by Indiaforensic Consultancy Services ( ICS), a provider of forensic accounting education, surveyed the cream of the Chartered Accountants ( CAs) in the country. The findings have been authenticated by Chartered Accountants. A total of 11 industrial sectors have been included in the survey.
These include banks and non- banking finance companies ( NBFCs), government and public administration, manufacturing including pharmaceuticals, insurance, retail, real estate, construction, IT/ ITES, media and communication, services other than banking and Insurance, transport and warehousing, oil and gas.
Apurva Pradeep Joshi, research head of Indiaforensic Consultancy Services said there were different types of frauds. They could be cash frauds, inventory frauds, account payable frauds, accounts receivable frauds, payroll frauds and revenue recognition frauds,” said Joshi.
One of the chief motives of fraud was to evade tax. Avoidance of regulatory compliance was also cited as one of the reasons. “ Some prefer to maintain their status as smallscale industrial units and thus fudge their financial statements,” said Joshi. Dividend declaration and foreign investment were other reasons.
Accounts are fudged in order to attract foreign investments.“ Balance sheets are manipulated and higher dividends declared in order to generate goodwill for the company.Stock prices are also manipulated by beating down expectations,” Joshi added.Around 26 per cent of the respondents said the manufacturing sector was most prone to frauds, followed by 13 per cent who said the banking sector was most prone. The types of frauds that occurred in the manufacturing field include inventory embezzlement and fudging inventory financial statements. Joshi said the fraud levels could go down provided proper checks were put in place.
These include banks and non- banking finance companies ( NBFCs), government and public administration, manufacturing including pharmaceuticals, insurance, retail, real estate, construction, IT/ ITES, media and communication, services other than banking and Insurance, transport and warehousing, oil and gas.
Apurva Pradeep Joshi, research head of Indiaforensic Consultancy Services said there were different types of frauds. They could be cash frauds, inventory frauds, account payable frauds, accounts receivable frauds, payroll frauds and revenue recognition frauds,” said Joshi.
One of the chief motives of fraud was to evade tax. Avoidance of regulatory compliance was also cited as one of the reasons. “ Some prefer to maintain their status as smallscale industrial units and thus fudge their financial statements,” said Joshi. Dividend declaration and foreign investment were other reasons.
Accounts are fudged in order to attract foreign investments.“ Balance sheets are manipulated and higher dividends declared in order to generate goodwill for the company.Stock prices are also manipulated by beating down expectations,” Joshi added.Around 26 per cent of the respondents said the manufacturing sector was most prone to frauds, followed by 13 per cent who said the banking sector was most prone. The types of frauds that occurred in the manufacturing field include inventory embezzlement and fudging inventory financial statements. Joshi said the fraud levels could go down provided proper checks were put in place.
