FRAUD REPORTING
FRAUD REPORTING

[1]Financial fraud is a phenomenon that haunts everyone alike. Not only does it mean loss of an asset for the one who has been at the receiving end of a fraud, it has the capability of shaking the roots of “confidence” and “trust” that anchor a society and/or an economy. Governments and other policy makers therefore remain keen to control the menace
The
Companies (Amendment) Act, 2015 is a harbinger of positive trends in the ease
of doing business for Indian companies. This post is specifically with regard
to Section 143 of the Companies Act, 2013 concerning the power and duties of
auditors and its amendment thereof.
Prior
to the new Companies Act, 2013 Fraud was largely seen as a broad legal concept.
The old Companies Act already provides punishment for fraudin various sections
but the new Act has come with more specific and clear provisions relating to
fraud and fraud reporting. The scope and coverage is very wide unlike Companies
Act, 1956.
Auditors have always
had an important role to play in enhancing the credibility of the financial
information. With the introduction of section 143(12) of the Companies Act,
2013, the Central Government is apparently seeking the support of the auditors
in bringing in greater transparency and discipline in the corporate world to
protect the interests of the shareholders as also the public, at large.
The increasing rate
of whitecollar crimes demands stiff penalties, exemplary punishments, and
effective enforcement of law with the right spirit. Our country has also
witnessed several corporate Frauds, few of them being the 5000 crore rupees
Harshad Mehta scam in 1992, 7000 crore rupees Satyam fiasco in 2009, the 27000
crore rupees Sahara fraud case which started in 2010 and is subjudice in
Supreme Court, till date.
v Persons Covered for Reporting on Fraud under
Section 143(12) of the Companies Act, 2013:
The reporting
requirement under Section 143(12) is for the followings:
·
Statutory
Auditors of the company and also equally applies to the
·
Cost
Accountant in practice, conducting cost audit under Section
148 of the Act; and
·
to the Company Secretary
in practice, conducting secretarial audit under Section 204 of the Act
·
Branch Auditor appointed under Section 139
to the extent it relates to the concerned branch
·
Internal Auditor
v
Person doesn’t include in the requirement to report
Fraud:
The provisions of
Section 143(12) do not apply to other professionals who are rendering other
services to the company. For example, Section 143(12) does not apply to
auditors appointed under other statutes for rendering other services such as
tax auditor appointed for audit under Income-tax Act; Sales Tax or VAT auditors
appointed for audit under the respective Sales Tax or VAT legislations
.
v
Fraud covered Under 143
Its includes only
fraud by officers or employees of the company and does not include fraud by
third parties such as vendors and customers.
v
Definition of fraud:
Fraud has been
defined as, “Fraud in relation to affairs of a company or any body corporate,
includes any act, omission, concealment of any fact or abuse of position
committed by any person or any other person with the connivance in any manner,
with intent to deceive, to gain undue advantage from, or to injure the
interests of, the company or its shareholders or its creditors or any other
person, whether or not there is any wrongful gain or wrongful loss. ‘Wrongful
gain’ means the gain by unlawful means of property to which the person gaining
is not legally entitled and ‘wrongful loss’ means the loss by unlawful means of
property to which the person losing is legally entitled.” It is the first time
that the Act defines fraud and also imposes civil and criminal liability on the
fraudster for non-compliance.
v
Fraud is also defined in Section 17 of Indian
Contract Act, 1872 as follows:
“Fraud” means and includes
any of the following acts committed by a party to a contract, or with his
connivance, or by his agents, with intent to deceive another party thereto his
agent, or to induce him to enter into the contract;
(1) the suggestion as a fact,
of that which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one
having knowledge or belief of the fact;
(3) a promise made without any intention of
performing it
(4) any other act fitted to deceive;
(5) any such act or omission as the law
specially declares to be fraudulent.
v
Required Professional Skepticism and follow SAs
Requirements
For Detection of
fraud professional required to use their professional skepticism while doing
audit. It may be possible not to detect acts that have intent to injure the
interests of the company or cause wrongful gain or wrongful loss, unless the
financial effects of such acts are reflected in the books of account/financial
statements of the company. For example,
An auditor may not be
able to detect if an employee is receiving pay-offs for favouring a specific
vendor, which is a fraudulent act, since such pay-offs would not be recorded in
the books of account of the company
Therefore, the
auditor shall consider the requirements of the SAs, insofar as it relates to
the risk of fraud, including the definition of fraud as stated in SA 240, in
planning and performing his audit procedures in an audit of financial
statements to address the risk of material misstatement due to fraud.
Procedure for
Fraud Reporting:

If an
auditor of a company, in the course of the performance of his duties as
statutory auditor, has reason to believe that an offence of fraud, which
involves or is expected to involve individually an amount of rupees
one crore or above, is being or has been committed against the
company by its officers or employees, the auditor shall report the matter to
the Central Government.
Auditor
should report such frauds as soon as possible but not later than 62 days of his
knowledge about the frauds:
STEP-I
REPORT TO BOARD & AUDIT COMMITTEE:
Auditor
shall forward his report to the Board of Directorsor the Audit Committee,
as the case maybe, within 2 days of his knowledge of the fraud, seeking their
reply orobservations within 45 forty-five days;
STEP-II
Report to government after reply of board:
On receipt
of such reply or observations the auditor shall forward his report and the
reply or observations of the Board or the Audit Committee along with his
comments (onsuch reply or observations of the Board or the Audit Committee)
to the CentralGovernment within 15
fifteen days of receipt of such reply or observations;
STEP-III
Report to government if no reply received
In case
the auditor fails to get any reply or observations from the Board or the
Audit Committee within the stipulated period of 45(forty-five days), he
shall forward his report tothe Central Government alongwith a note containing
the details of his report that wasearlier forwarded to the Board or the Audit
Committee for which he failed to receiveany reply or observations within the
stipulated time.
Other Points to be
kept in mind:
v The report
shall be on the letter-head of the auditorcontaining
·
Postal Address,
·
e-mailaddress and
·
contact number and
·
signed by the auditor with his seal and shall
·
indicate his Membership Number.
v Report
shall be in the form of a statement as specified in Form ADT-4.

·
Sub-rule (3) of revised Rule 13 of the
Companies (Audit and Auditors) Rules, 2014 Provides that in case of
fraud involving an amount less than Rs. 1 Crore, the auditor shall report the
matter of fraud to the Audit Committee or to the Board within 2 days of his
knowledge of the fraud.
·
The report should specify the nature of the fraud with
description, approximate amount of the fraud and parties involved in the fraud.
·
In such case, as per Sub-rule (4), the Board shall disclose in
its report (Board's Report) the nature of fraud with description, approximate
amount of the fraud, parties involved in the fraud and remedial action taken.
·
Name of parties should be disclosed only when the Board or Audit
Committee has not taken any remedial action against the fraud.

Section 447 defines
the punishment for fraud, as below:
·
Criminal Liability –
Imprisonment
Minimum:
6 months (3 years in case public interest is involved)
Maximum:
10 years
AND
·
Civil Liability – Fine/
Penalty
Minimum: Amount
equivalent to fraud Maximum: 3 times of amount involved in fraud It is
important to note that penalty isnon compoundable.
[1]With regard to fraud materiality, there has
been some development in the United States. In Amgen Inc. v.
Connecticut Retirement Plans & Trust Funds,[1] the
Supreme Court stated that a plaintiff is not required to prove the materiality
of fraud/misrepresentation in order to obtain class certification. Class
certification is a process by which a certain set of people are grouped
together as a ‘class’ for the purpose of a class action suit under Rule 23 of
the Federal Rules of Civil Procedure. This ruling will greatly benefit
plaintiffs in the United States.
Great share!
ReplyDeleteI love this bucket list and you know you're right. sand blasting machine manufacturer. We all have the same amount of hours in a day so put them to good use. We all have to start somewhere and your plan is perfect. I understand the way of the attractive to the customer with the products sand blasting machine.
Sand blasting machines like shot blasting machine, sand blasting machine, and grit blasting machines, Wood Working Machinery Dust Extraction unit, Abrasive Blasting Media and various others. Keep it works and share with us your latest information. My time will come but I know I'm on the right path.
They are similar to small communities that you own - check them out if you haven't already. It's all got a lot better than before!t. Value that list of thousands but I'll get there.
Thanks for sharing. Have a nice week ahead.
Visit at : www.gritblast.co.in
Also check
portable shot blasting machine
portable sand blasting machine
sand blasting cabinet
grit blasting cabinet
shot blasting cabinet
Regards,
Ankit Manawat.