Protecting your bottom line fraud

Friday, January 09, 2009 | Posted by: Grant Thornton
Categories: | Tags: India, investment, global, Colin Johnson, frauds, India Watch, protecting, LSE, South Asia Group

The start of 2009 has seen a number of high profile company frauds around the world. India was also not immune from this with its own high profile cases.

What this means is that Indian accounts, even when signed off by large auditors, will now be the subject of greater scrutiny and Indian companies in general will be under review. It is also true that worldwide there is currently a greater push against fraud and corruption, with more yet to come. Initiatives such as the World Bank Institute’s new Guide and web portal ‘Fighting Corruption Through Collective Action - A Guide for Business’ (which Grant Thornton supports) are providing businesses with the practical toolkit they need in order to join together to fight corruption. More questions are also being asked of suppliers by large purchasers wanting to ensure that they will not suffer damage to their brand because of the activities of their suppliers.

All these issues mean that for companies based in or operating in India, it is worth asking the hard questions now so that the answers are ready when the issue arises (and it will, whether on financing, sales, audit, from regulatory or stock market authorities or in any new relationship for example). How would your business answer these questions?

• Do you believe your procurement contracts are entered into in a transparent process? Can you demonstrate that the processes used and the awards are fair?
• Are you sure that your approach to bidding for or winning work or sales will not put you in breach of any legislation either in India or elsewhere (eg the US Foreign Corrupt Practices Act which can apply worldwide)?
• Do you have the necessary internal controls to avoid fraud?
• Is your internal audit function really independent from the executive team?
 
• Is there a truly effective whistleblower system that staff can have faith in?
 
• Does your top management take the organisation’s values and principles seriously? Do they actually communicate them to staff adequately and demonstrate the importance of properly addressing such issues?
• Do your non-executive directors have the necessary stature and freedom to raise issues of concern?
• Are your workplace practices appropriate (eg no child labour, reasonable hours, working conditions and rates of pay)?
• Do you believe your management carry out effective checks on intermediaries involved prior to entering into a global (or local) joint venture arrangement? or during an out-bound investment?

In today’s global and dynamic business environment, it is critical to be proactive in order to protect your bottom line and the investor confidence. If you do not know the answers on these questions or know that the answers are not satisfactory, then your bottom line profit is at risk and it is probably time to get some help from somebody outside the business to conduct an independent review. This will not only ensure prompt responses when regulators knock on the door but also enhance the operations of the business in the long run.

Colin Johnson
Associate Director, Forensic and Investigation Services
South Asia Group
For Grant Thornton UK LLP