New act can prevent corporate fraud: Moily

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SME Times News Bureau | 24 Jan, 2012
The Companies Bill 2011 will help to prevent growing incidents of corporate fraud, said minister for corporate affairs Veerappa Moily on Monday in New Delhi.

"The Companies Bill 2011 awaiting Parliamentary approval provides for tools to handle investigation, enforcement and penalty structure to address situations resulting from corporate fraud. It also provides for establishing of special courts vested with requisite civil and criminal jurisdiction to deal with company matters – including cases involving fraud," Moily said while inaugurating a national conference organised by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

He added that financial frauds in the corporate world are very complex in nature and can be properly investigated only by a multi-disciplinary team of experts. “There are limits to what even gifted amateurs can achieve, especially when they do not have a common platform and different enforcement agencies concerned play a lone hand from their respective turfs. There is need to provide a more concerted approach," he said.

"With pressure on companies to deliver short-term profits plus the growing complexities of organisational processes added to the recessionary climate in many countries, the risk of fraud is much higher today than in previous times. The government has thus set up the Serious Fraud Investigation Office," he said.

Meanwhile, ASSOCHAM president Dilip Modi said management of fraud is an integral component of effective corporate governance which builds on the requirement for transparent and accountable process consistent with sound business practices and organisation standards of compliance.

“Recent experiences of successive failures and financial collapses indicate dire need to develop and adopt principles of good governance – both for private and public sector companies. As international markets are increasingly shifting to the adoption of global standards, best practices in corporate governance will become even more important," he said.

ASSOCHAM secretary general D.S. Rawat said the chamber will set up a national council on corporate governance within two weeks and compile a set of recommendations on the subject for government to ponder upon.

Deepankar Sanwalka, chairman of ASSOCHAM national council on internal audit and corporate fraud, said the incidents of financial frauds by senior management-level employees are likely to increase in future as the stakes go up higher. Leveraging technologies and effective enforcement of laws should override company’s growth and profitability.