Forensic accountants in India are reported to work on several cases of senior management fraud. Many of these cases relate to increasing profits through unethical and fraudulent practices. The culprit is variable compensation, especially in cases where variable compensation is a multiple of fixed compensation. According to accountants and lawyers interviewed by the Business Standard indicated that more of such cases will emerge as the economic climate worsens.
Cooking the books in the past was linked to stock option schemes, now it seems to be variable compensation. Most experts agreed that these cases will not become public because Indian companies are not transparent and firings are often masked as ‘resignations’. Common practices for shoring up profits are: transferring expenses to subsidiaries and pushing finished goods to dealers. In most cases, the whistle is blown by disgruntled employees, and audit committees of directors. Private equity firms often launch their own investigation.
Source: Business Standard India Sept. 13, 2008
BIIA Newsletter September 2008 Issue