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Journalism of Courage
Twice shy after it failed to detect the Satyam Computer scam which bloomed unnoticed for years,the government is now getting a new nose to smell corporate frauds while they are still cooking. Official sources say the government is preparing a system for early detection of fraud which would start sending alert signals if discrepancies are found in company books.
Adverse remarks from auditors and changing the auditors for more than once in three years can bring a company under the fraud scanner. Along with this,if a companys quantum of related-party transactions is more than 5 per cent of domestic sales,or 50 per cent or more directors resign in one year,or earning per share fluctuates more than 25 per cent compared with the previous year,an early warning system (EWS) will alert the government after which the company will come under a close scrutiny of the ministry.
The ministry is preparing the EWS,a software which will help it analyse and scrutinise well in time so as to detect misconduct or fraud at an early stage.
The scrutiny will not be restricted to listed or large companies only,but unlisted and smaller firms would also be under watch,say sources.
Various risk factors such as not filing annual accounts for two years,share application money remaining un-allotted for more than a year,complaints received from shareholders against the affairs of the company,occurrence of losses if there has been profit in the last two years,continuous increase in capital-work-in-progress for three consecutive years will be recognised by the EWS and would be given a risk weightage. The government will follow this weightage to order the inspection of company books.
Once the relevant information is entered into the EWS,it will calculate the risk that is to be assigned to a company. Then high-risk companies will be taken up for scrutiny or inspection.
The ministry will also use reports from the media,the DRI,the CBI,and regulators such as the ED,the Sebi,and the I-T department.
Soon after taking charge,corporate affairs minister Salman Khurshid had said that keeping in mind the governments failure to detect the Satyam scam,the ministry would work on developing a system for early warning.
The multi-crore Satyam fraud committed by the founder of the IT firm B Ramalinga Raju in January this year exposed some glaring loopholes in the corporate surveillance. Many had claimed that there were ample advance signals of the fraud which the government missed.
