Mitigating risk in transactionsFraud Investigation and Dispute Services

Investors and fund managers encounter a number of challenges before and after investments. These challenges range from low visibility of the target’s business to unethical activities by the target such as fraud, corruption and bribery. We can assist in managing the risk of value erosion and loss of reputation by providing various services at each stage of the transaction, right from pre-investment till the conclusion of the deal.

Addressing the risk of fraud and disputes in transactions

• ► Endeavor to probe and procure information beyond surface visibility

• ► In-depth knowledge of relevant transactions, investigation and compliance issues, combined with the experience in India and emerging markets

• ► Skilled and experienced professionals

• ► Integrated approach – ability to work with transaction, mergers & acquisitions team and your legal advisors

• ► Continuity of team and consistency of approach

Unethical activities• ► ►Diversion of funds, undisclosed related

party transactions

• ► Assets siphoned, liabilities hidden, financial performance misstated

• ► Wrong ethical fit, leading to reputation exposure

• ► Legacy issues of fraud, corruption, bribery, money laundering or trade restrictions

• Sugar coated portrayal of facts

Completion accounts exposures• ► Lack of clarity on what is included and excluded

• ► Poor, ambiguous or contradictory verbiage open to varying interpretations

• ► Disagreement on the treatment of items in previous financial statements

Earn outs exposures (in addition to completion accounts exposures above)• Dealing with the change of control and inherent

uncertainties

• ► Impact of disputes on the performance and motivation of management

What you require

What can go wrong?

Mitigating risk in transactions Fraud Investigation and Dispute Services

Benefits to you

• Avoidance of reputation risk and surprises by anticipating pre-deals

• Avoidance of costly, long running disputes by anticipating pre-deals

• Visibility of utilization of funds

• Robust technical accounting capabilities to resolve complex issues

• Guidance and support in dispute resolution

• Familiarity with intellectual property and brand protection disputes

• Tackling risk management and compliance concerns across assets

• Exit value maximization

Our responseYour needs

Understanding and resolving business activity issues:

• ► Ethics and integrity due diligence on:

• ► Investment target

• ► Promoters or key personnel

• ► Bribery and corruption due diligence

• Forensic procedures to support financial due diligence

• ► Assets — inventory, receivables, advances

• ► Revenue reporting

• Cross audit procedures

Monitoring and control

• End-use monitoring: Monitoring and reporting the utilization of funds invested in the portfolio company

• Anti-fraud and anti-corruption compliance program advisory: Proactive measures to mitigate the risk of fraud/corruption in the portfolio company

• Whistle blowing framework: Monitor your investments through crucial inputs on probable fraud, misconduct, violation of business practices, etc.

Investigations on portfolio problems

• Integrity of financial reporting and black-hole investigations

• Financial investigation on concerns of fraud or corruption

Transaction disputes

• Resolution of disputes over purchase price

• Accounting knowledge on issues affecting liability and losses

Analyzing and avoiding problems before the deals

Addressing issues in the portfolio

Contact detailsArpinder SinghPartner and National LeaderDirect: + 91 22 6192 0160Email: arpinder.singh@in.ey.com

Anurag KashyapPartnerDirect: +91 22 6192 0373Email: anurag.kashyap@in.ey.com

Sandeep BaldavaPartnerDirect: + 91 40 6736 2121Email: sandeep.baldava@in.ey.com

Anil KonaPartnerDirect: +91 80 6727 5500Email: anil.kona@in.ey.com

Mukul ShrivastavaPartnerDirect: +91 22 61922777Email: mukul.shrivastava@in.ey.com

Dinesh MoudgilExecutive DirectorDirect: +91 22 6192 0584Email: dinesh.moudgil@in.ey.com

Summary Situation What we did Benefit

FCPA/Anti Bribery and corruption due diligence

• We were engaged by a large private equity (PE) fund to perform a bribery and corruption due diligence on an Indian power generation company, with assets in hydel and thermal power generation.

• ► We identified significant gaps in the policies and procedures that gave rise to bribery and corruption risks in the target company.

• ► The results of our findings were a significant contributory factor to the buyer focusing on formulating a bribery and corruption risk compliance program on priority.

Ethics & Integrity Due Diligence on a real estate company

• We were engaged by a PE fund to conduct Ethics & Integrity Due Diligence on an Indian real estate company, based in Delhi.

• ► We undertook extensive site visits and interviews to collect information on the market reputation and professional background of the key promoters.

• ► The results of our findings were a significant contributory factor for the client to decide against the deal.

Ethics & Integrity Due Diligence on a biopharmaceu-ticals company

• We were engaged by a PE fund to conduct Ethics & Integrity Due Diligence on an Indian family-run biopharmaceuticals company.

• ► Besides interviewing a number of employees (working in sales, R&D and manufacturing), we spoke to doctors, drug distributors, competitors to gain their perspective on the company’s operations.

• ► We undertook extensive research on public domain information sources.

• ► The client was able to assess the risk of unethical sales practices and put checks and balances to ensure that the sales function was revamped prior to investment.

Financial reporting investigation at portfolio company

• We were engaged by a PE fund to ascertain facts related to recent write-offs and financial adjustments that were undertaken at their portfolio company.

• ► We identified unrecoverable advances recorded as paid to vendors were in fact paid to related parties and overstated inventory being written off as process loss.

• ► Our findings were helpful in negotiations with the promoter for the takeover and recovery of misappropriated funds.

End-use monitoring of funds

• Our team members worked for large multinational bank that had invested in one of the large real estate developers in India. The bank sought help to investigate into allegations of irregularities with respect to acquisition of land.

• ► We mapped out the complete utilization of funds invested by the bank, based on books and records and bank statements.

• ► We identified the amount that was siphoned out by the promoters and the modus operandi.

• ► The multinational bank filed recovery proceedings against the real estate developer.

End-use monitoring of funds

• Our team members worked for one of the large Asia-centric special situation funds that suspected:

• Window dressing of financial statements by the portfolio company

• Indulgence of the portfolio company in large scale off-the-book sales (cash sales) to siphon out funds

• ► We identified off-book sales that were made in cash.

• ► We identified fake invoices used to inflate revenues.

• ► We identified actual output and scrap generated, based on the analysis of input-output ratios.

• ► The PE fund filed recovery proceedings against the portfolio company based on our report.

Review of representations and warranties after investment

• Our team members worked for a large manufacturing company that had recently acquired a smaller player in the same sector and suspected that the revenues and profitability declared before the acquisition were inflated.

• We identified systemic ways in which revenues and work-in-progress (stock) were inflated.

• ► We identified the effect on declared numbers and consequently the acquisition price.

• ► The company was able to reduce the cost of acquisition and was able to identify significant contingent liabilities.

Team experience

Vivek AggarwalPartnerDirect: + 91 12 4464 4551Email: vivek.aggarwal@in.ey.com

Our solutions to help you mitigate the risk

Some key differentiators

What really sets us apart?

Our approach

Team

• ►Extensive knowledge of emerging markets and their inherent risks• Single point of contact for all your queries and engagement support• Robust review mechanism to ensure complete coverage• A diverse team and resources that include:

• Subject matter professionals• Industry contacts• Developed networks • Certified Fraud Examiners, CIAs, CAs, CISAs, Engineers, MBAs, computer forensic professionals and lawyers

• A tailored approach that involves industry professionals to highlight potential risk areas• A step-by-step approach to probe problem areas• Wide stakeholder coverage to ensure depth• Ethical approach to intelligence collection• Routine updates and notification of red flags

• Dedicated team with experience in country-specific risk profiling and investigative backgrounds• Team led by individuals with more than 30 years of collective industry experience• People with significant breadth of specialized industry experience• Average experience of managers more than 7 years in investigation

Pre-transaction services

Post-transaction services

Our solutions for PE funds

Ethics and integrity due diligence on the target company and its promoters

Whistle blowing hotline at investee companies

Anti-fraud and anti-corruption* compliance program advisory

Investigations on portfolio problems

End-use monitoring of the funds invested

Transaction disputes resolution

Forensic proce-dures to support financial due diligence

Bribery and corruption* due diligence

Mitigating risk in transactions Fraud Investigation and Dispute Services

*Foreign Corrupt Practices Act (FCPA) 1977 and the UK Bribery Act 2010

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EY refers to the global organization, and/or one or more of the independent member firms of Ernst & Young Global Limited

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