Case Study
Whistle Blower Complaint of an Employee Fraud
Background
Company: Manufacturing Corp., a mid-sized manufacturing firm.
Issue: Discovery of fraudulent activities by an employee in the finance department.
Fraud Description: The employee manipulated financial records to embezzle funds over 18 months.
Amount Embezzled: INR 5.5 crore
Detection
Detection Method: Whistleblower complaint details and internal review procedures.
Identification of Red Flags: Irregularities in financial reports, discrepancies in vendor payments, fake vendors created in the books of accounts.
Method: Falsified invoices, unauthorized transactions and tampering books of accounts.
Response
Immediate Actions: Termination of the employee, forensic investigation, and recovery efforts.
Long-term Actions: Strengthened internal controls, application of make-checker, implemented fraud prevention training.
Outcome
Financial Impact: Recovered 60% of embezzled funds.
Operational Changes: Enhanced auditing processes and increased oversight.
Key Takeaway: Importance of regular audits with specific scope in fraud risk areas, a strong whistleblower policy in detecting and preventing employee fraud.
Digital Forensic Review
Background
Company: Successful Corporation, a leading tech firm.
Objective: Investigate potential intellectual property (IP) theft by a departing employee.
Suspected Issue: An employee was suspected of copying sensitive company data before resigning.
Potential Risk: Unauthorized use or sale of proprietary information to competitors.
Forensic Review
Methodology: Comprehensive forensic analysis of the employee’s computer/laptop, emails, and external drives.
Tools Used: Data recovery software FTK Forensic Toolkit used to image and process laptop and server data, Intella used for review and analysis of emails and documents extracted , and monitoring of file integrity.
Findings
Evidence Discovered: Identified unauthorized data transfers, including critical IP files to a personal USB drive.
Action Taken: Legal proceedings initiated, immediate IT security policy updates, and employee exit protocol enhancements.
Outcome
Legal Resolution: The employee was held accountable, and the stolen data was successfully recovered.
Preventive Measures: Strengthened data access controls, enhanced monitoring of employee activity, and mandatory exit audits.
Key Takeaway: Timely computer forensic review is essential for detecting and addressing digital security breaches.
NPA Forensic Audit of a Public Sector Bank
Background
Institution: National Bank, a leading public sector bank.
Objective: Conduct a forensic audit on a large corporate loan account which was classified as an NPA.
Problem: A loan of INR 5,400 crore extended to a major infrastructure company, subsequently became an NPA.
Suspected Irregularities: Potential fund diversion to connected entities, fraudulent and undervalued transactions, misrepresented financial statements.
Forensic Review
Guidelines : RBI’s directives on forensic review for NPAs.
Methodology: Detailed examination of financial records, fund trail analysis, background checks to identify undisclosed relationships, review of vendor payments, scrutiny of loans given to connected parties, concentrated payments to select vendors, forensic review of supporting documentation for the transactions recorded, site visits to suspicious locations based on the review undertaken.
Findings
Irregularities Identified: INR 2,300 crore diverted to unrelated business activities, falsified financial documents, and shell company transactions.
Action Taken: Legal action against the borrower, reporting to enforcement agencies, and initiation of recovery proceedings.
Outcome
Financial Impact: Recovery efforts initiated, with 40% of the misappropriated funds recovered.
Operational Changes: Strengthened due diligence in loan disbursement and monitoring, implement early warning signals, collab with Credit Bureaus.
Key Takeaway: Forensic audits under RBI guidelines are vital for identifying and mitigating risks associated with NPAs, ensuring financial accountability.
End Use Monitoring of Funds
Background
Company: Developer Ltd., a large infrastructure development firm.
Objective: Ensure funds provided by financial institutions were used strictly for intended project purposes.
Challenge: Concerns about potential diversion of funds allocated for a critical infrastructure project.
Risk: Misuse of funds could lead to project delays, financial losses, and reputational damage.
Monitoring
Methodology: Regular audits, site inspections, and review of financial statements and invoices.
Tools Used: Bank Statement Analysis Software to monitor the transactions, third-party verification through specialized teams, and forensic accounting approach.
Findings
Discrepancy Identified: Noted that INR 300 crore were diverted to unrelated business activities basis the bank statement analysis and background checks.
Action Taken: Immediate intervention, reallocation of funds, and suspension of non-compliant contractors.
Outcome
Financial Integrity: All funds were re-channeled to the intended project activities.
Project Completion: Successfully completed on time and within budget.
Key Takeaway: Continuous end-use monitoring is crucial in ensuring financial discipline and project success.