Govt to set up unit for early detection of company fraud

Seeking to strengthen its monitoring mechanism to prevent mega corporate frauds,the government has decided to set up a Market Research and Analysis Unit...

Seeking to strengthen its monitoring mechanism to prevent mega corporate frauds,the government has decided to set up a Market Research and Analysis Unit MRAU to help in the early detection of frauds by analysing offer documents and red herring prospectuses of companies planning to raise funds. The unit would monitor end-use of funds raised by companies while also studying the trends of default by them.

The MRAU,to be established under the aegis of the Serious Fraud Investigation Office SFIO,the investigating arm of the corporate affairs ministry,will analyse information collected from various investigation agencies,banks,financial institutes,deposit holders,complaints from investors and ascertain the financial and managerial behaviour of the companies,an official source said.

Other fraudulent practices prevalent like siphoning of working capital loans and public money for the personal use by promoters,and creation of equity by rotation of cheques by the promoters to shore up their holding in a company,will also be examined by the unit to facilitate legislative amendments to curb such practices,the official added. The information also from the data already available through the MCA-21 project entailing e-filing of key documents like financial statements would be collated to track fradulent companies.

Further,the research unit would also study global systems in tracking fradulent companies and develop a module based on them for enabling smoother investigation. The unit will also take both quantitative and qualitative information from various regulatory bodies as well as market information received through compliants. In fact,the unit will also take cognisance of media reports on fund diversions and falsification of accounts.

Cap on boards for IDs

MUMBAI: Corporate affairs minister Salman Khurshid on Tuesday said the government is of the view that there should be a limit on the number of boards in which independent directors IDs can join. However,the upper limit has not been decided yet. On the responsibility of an ID towards shareholders,he said that companies can evolve a module and ask them to understand and adhere to it.

What a director should know about a company should be communicated before he joins the board, Khurshid said. On the Satyam fraud and the issue of rotational auditors to avoid scams,Khurshid said,The Satyam fraud was a dark shadow in the corporate image of India Inc. Things have changed since then as it has emerged as a case study on crisis management. Satyam will be a success story from being a question mark. ENS