Red Flags Compendium Practical Case Studies in Forensic Accounting & Corporate Fraud Investigation

Book Details

CONTENTS AT A GLANCE

Preface	5
Detailed Contents	13
Chapter 1 Red Flags in Forensic Accounting and Investigation – An Introduction	1
Chapter 2 Material Business Changes	4
Chapter 3 Scale of Operations of a Company	8
Chapter 4 Complex Transaction Structures	12
Chapter 5 Predominance of Cash Transactions	16
Chapter 6 Registered Office of the Company	20
Chapter 7 Foreign Entity Connections and Potential Non-Compliance with FEMA	24
Chapter 8 Team Competency and Presence for Financial as well as Operations related matters	29
Chapter 9 Director Disqualification under Section 164(2) of the Companies Act, 2013	33
Chapter 10 Director Disqualification Due to Non-Filing of Financial Statements by Connected Entities	38
Chapter 11 Frequent Changes in Directors and Key Managerial Personnel	44
Chapter 12 Name Sake Directors	49
Chapter 13 Frequent Changes in Auditors and Auditor Independence	54
Chapter 14 Large Number of Related or Connected Entities	60
Chapter 15 Materially Adverse Information Identified through Public Domain Searches	65
Chapter 16 Promoters and Connected Entities Marked as Wilful Defaulters by Banks and Financial Institutions	70
Chapter 17 Corporate and Bank Guarantees Issued to Related Parties and Third Parties	75
Chapter 18 Unconfirmed Balances of Debtors, Creditors, Loans, and Advances	80
Chapter 19 High-Value Receipts and Payments during the Look-Back Period	85
Chapter 20 Legal and Professional Fees as a Potential Red Flag Indicator	90
Chapter 21 Kickbacks in Procurement Contracts	95
Chapter 23 Non-Maintenance and Loss of Books and Records	105
Chapter 24 Weak Accounting Systems and Internal Controls	110
Chapter 25 Non-Registration and Non-Filing of GST/IT Returns	115
Chapter 26 Material Arbitration Proceedings	120
Chapter 27 Clean Audit Reports and the Need for an Avoidance Review	125
Chapter 28 Assets Featuring in the Balance Sheet without Proper Title	130
Chapter 29 Frequent Changes in Accounting Policies	134
Chapter 30 Incomplete Board Reports not in Line with the Companies Act, 2013	140
Chapter 31 Assets in Transit or Not Cleared from Port for a Significant Period of Time	145
Chapter 32 Assets Used by Other Entities on a Free of Cost or Lower-than-Market Charge Basis	150
Chapter 33 Significant Aging of Capital Work in Progress	155
Chapter 34 Significant Revaluation Reserves in the Balance Sheet	160
Chapter 35 Sale and Leaseback Transactions of Assets Pledged in Favor of Lenders	165
Chapter 36 Unauthorized Creation of Security Interests	170
Chapter 37 Assets Used for Personal Purposes of Promoters with Costs Borne by the Company	175
Chapter 38 Large Undervalued Asset Sales without Valuation Reports or Competitive Sale Process	180
Chapter 39 Incorporation of Special Purpose Vehicles (SPVs) and Transfer of Funds without Underlying Business Purpose	185
Chapter 40 Significant Investments in Partnership Firms and Other Unincorporated Entities	190
Chapter 41 Indian Special Purpose Vehicle (SPV) Subject to Strike Off and Loss of Trail of Funds	195
Chapter 42 Foreign Special Purpose Vehicle (SPV) Closed without Notice to Lenders and Loss of Fund Traceability	200
Chapter 43 Creation of Assets Abroad and in Related Entities	205
Chapter 44 Sale or Transfer of Key Revenue-Earning Business Divisions	210
Chapter 45 Shares of Investee Entities Purchased as Investments at Exorbitant or Unjustified Premiums	215
Chapter 46 No Returns on Investments in Terms of Dividends or Refund of Capital Even after Long Periods	221
Chapter 47 Large Value Investments Extinguished or Written off and Recorded as Losses without Proper Rationale, Leading to Erosion of Net Worth	226
Chapter 48 Shareholding Dilution by Fraudulent and Collusive Rights Issue Process and Relinquishments in Investee Companies	232
Chapter 49 Variances Between Stock Reporting to Lenders and Books of Accounts	238
Chapter 50 Sale of Inventory Other than in the Normal Course of Business	243
Chapter 51 Large Sales Returns to Certain Operational Creditors to Enable Preferential Payments for Current Transactions in the Ordinary Course of Business	249
Chapter 52 Inflated Stock and Book Debts Reporting without Underlying Inventory	255
Chapter 53 Customer Master Data is Not Maintained Properly and is Incomplete	260
Chapter 54 Fraudulent Accounting and Reporting of Sales and Inflation of Receivables	264
Chapter 55 High Value Discounts Offered to Some Customers and Not to Others	269
Chapter 56 Collections Routed Through Non-Authorized Bank Accounts or Received in Cash	274
Chapter 57 Customer Payments are Made Directly to Vendors/ Promoters and Receivable Balances are Not Reconciled	279
Chapter 58 Significant Aging of Receivables Balances	284
Chapter 59 Assignment of Receivables to Third Parties/Related Parties	289
Chapter 60 Large Receivables Extinguished/Written off and Recorded as Losses without Proper Rationale/Legal Efforts and Eroding the Net Worth	294
Chapter 61 Fictitious Bank Receipts (In Bank Book but Not in Bank Statements)	299
Chapter 62 Sudden Increase in Unbilled Revenue	304
Chapter 63 Receivables Written off on the Basis of Arbitral Awards	309
Chapter 64 Audit Qualifications on Revenue Recognition, Inability to Obtain Balance Confirmations	314
Chapter 65 Inflated Book Debts Reporting to Bankers Not Reconciled to Books of Accounts	319
Chapter 66 Presence of a High Number of Bank Accounts and Inter-Se Movement of Funds	324
Chapter 67 Diversion of Funds to Parties Other than Normal Business Payees	329
Chapter 68 Round Tripping of Funds Between Various Cash Credit Accounts Held with Different Bankers to Enhance Debit and Credit Summations of Bank Accounts	334
Chapter 69 Fund Movements Not through Designated Consortium Accounts	339
Chapter 70 Loans and Advances given without any Agreements and Legal Recourse	344
Chapter 71 Loans to Directors/Entities for No Business Purpose and Includes Related/Connected Entities	349
Chapter 72 Significant Aging of Loan Balances	354
Chapter 73 Loans and Advances on an Interest-Free Basis Although Interest is Paid by the Company	359
Chapter 74 Large Value Loans and Advances Written off without any Legal Recourse/Attempts to Collect and Eroding the Net Worth	364
Chapter 75 Loans and Advances Outstanding in Entities which are under “Strike-off� as per MCA Records and No Proceedings are Stated as Possible	369
Chapter 76 Share Capital Not Received by Bank Funds Process but by Adjustment Entries	374
Chapter 77 Return of Allotment Not Filed or Filed with Wrong Facts and Figures	379
Chapter 78 Exorbitant Share Premium from Investor Companies Not through Bank Sources and/or Diverted Back later	384
Chapter 79 Shareholding in the CD is Fictitious — the Investor-Shareholders have themselves Extinguished the Investments in their Balance Sheets	389
Chapter 80 Company Funds have been used to Purchase Shares of the Company by Directors	394
Chapter 81 Loans Recorded by Mere Book Entries without Corresponding Bank Inflows — Preference/ Fraudulent	399
Chapter 82 Round Tripping Loans Received, diverted to Other Group/Connected Entities without any Business Purpose — Diversion of Funds	404
Chapter 83 Loans taken without No Objection from Existing Lenders and Security Interest Created thereon	409
Chapter 84 Unsecured Loan becomes a Secured Loan without New Value	414
Chapter 85 Loans Stated as Received in Cash	419
Chapter 86 Certain Loans Settled in Priority over some Other Loans	423
Chapter 87 Loans Received at Exorbitant Rates of Interest or Security Created and Purchases on Credit at Exorbitant Prices	428
Chapter 88 Loan Agreement Stated as Secured Loan by Unregistered Memorandum of Deposit of Title Deed (MoDTD) and Ante-Dated Transactions	432
Chapter 89 Where Loans have been Recognized due to Invocation of Bank Guarantees (BGs), where such BGs did Not Reflect Genuine Business Transactions	437
Chapter 90 Security Interests and Claims Recognized on Basis of Award by Court or Tribunal	442
Chapter 91 Conversion of Unsecured Loan to Secured Loans in Order to Defraud other Secured Creditors Impacting the Waterfall Mechanism under Section 53 of the Insolvency and Bankruptcy Code	447
Chapter 92 Fictitious Purchases of Goods and Services and Consequent Liabilities and Losses	452
Chapter 93 Transactions Especially with Related Parties Not on an Arms-Length Basis	457
Chapter 94 Significant Aging of Payables Balances	462
Chapter 95 High Value Sole Selling or Purchase Agents and/or Related Parties	467
Chapter 96 Creditors Settled Directly by Customers but still Showing as Outstanding both for Receivables and Payables	472
Chapter 97 LCs Issued for Local Trade Related Party Transactions without Underlying Trade Transactions	477
Chapter 98 Significant Reduction in the Stake of Promoter/ Director or Increase in the Encumbered Shares of Promoter/Director	482
Chapter 99 Resignation of the Key Personnel and Frequent Changes in the Management	487
Chapter 100 Increase in Borrowings, Despite Huge Cash and Cash Equivalents in the Borrower's Balance Sheet	492
Chapter 101 Claims Not Acknowledged as Debt High	497
Chapter 102 Large Number of Transactions with Inter-Connected Companies and large Outstanding from such Companies	502
Chapter 103 Fictitious Bank Receipts in Bank Books	506
Chapter 104 Exorbitant Share Premium from Investor Companies	509
Chapter 105 Share Capital Contributions Not through Bank Channels	511
Chapter 106 Inflated Stock and Book Debts Reporting	513
Chapter 107 Hidden Dangers in Corporate Financial Statements — A Comprehensive Analysis of Red Flags	515
Chapter 108 Corporate Social Responsibility (CSR) Fraud and Forensic Investigation — A Comprehensive Analysis	530