Indian Audit and Accounts Department

Regional Training Institute, Nagpur'~

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rhird Issue October-March-- --- - -- .

From the PD's Desk IThe Comptroller & Auditor General of India, in his

inaugural address at the recently held conference of

the heads of the RTIsIRTCs, expressed his vision that

each instituteshould strive to achieve a status ofprofit

centre throughdeveloping qualityproducts that would

generate automatic demandfrom other entities of the

Government as well as corporate set up. In tune with

his vision, I am extremelypleased topresent this third

issue of the institute's newsletter. The previous year

has been quite fruitful in terms of innovative

participative training methodologies introduced and

products developed. Among others, achievements like

securing the top three all India level positions in

SOGE 2007, completing two levels of training on

'Audit of Frauds 'for the chosen groups, developing

two research papers and the tone set for hands on

training on 'Digital Forensics' have been the most

satisfying ones. However, these achievements are the

only starting points, but the journey ahead is

unending. I havefound excellence is not a battle you

fight with others, but a battle you fight with yourself,

by constantly raising the bar. In thisjourney, I believe,

while great individuals are important, one cannot aim

high withpockets of excellence. Obsessionfor quality

necessitates a culture of teaming and optimum

resources. Whilethere is no dearth of theformer, there

are constraints in having full complement of

manpower. Nevertheless the institute continue to

marchforward irrespective of these small hindrances

that come across and realize the vision set by the

Comptroller & Auditor General of India.

Sadu IsraelPrincipal Director

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2007-08---- ---------In this Issue I. Faculty's Column

Annual Review of BalancesHolistic approach is the keyfor success

Our ToppersOur ProductsAudit of Fraud Matters

The mandateFraud Examination in IndiaAuditing vis Fraud ExaminationLegislative measures to deal with EconomicCrimes in India - An overviewThe Fraud Tree

Red Flags and Anti-Fraud Measures inTendering

Di2Ditaries visited us I

...

1. Ms. Chitkala Zutsi, Addl. Chief Secretary (Home)Govt. of Maharashtra, for valediction of a workshopon 'Audit of Fraud, Fraud Detection Techniques andForensic Audit'.Dr. Tapan Chakrabarti, Director, NationalEnvironmental Engineering Research Institute(NEERI) for inauguration of a course on'Environmental Audit'.

2.

3.:J.~

Shri S.B. Pillay, Principal Accountant General(Civil Audit), Andhra Pradesh, Hyderabad fortaking part in mid term meeting of the RAC.Shri D.\Z Dharmik, Chief Commissioner ofIncome Tax,VidarbhaRegion for inaugurationofa course on 'Audit of Direct Taxes'.Shri Tirumal Kumar, Additional DirectorGeneral, National Academy of Direct Taxes,Nagpur for valediction of a course on 'Audit ofDirect Taxes'.Shri G.N. Sunder Raja, Principal Director ofCommercial Audit & Ex-Officio Member,AuditBoard, Hyderabad as a faculty in a workshop on'Audit of Frauds'.

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[ FACULTY'S COLUMN]

AnnualReviewofBalances(M!ID.Letusdothereviewmonthly I

What ISRUJJ?Heads that are operated are of two types,one that closes to Government at the end ofthe year andthe other which are balanced. The balanced heads are

mainly DDR heads, ie. Debt, Deposit and RemittanceHeads and SuspenseHeads. These are the heads whichrepresent transactions where Government has a defIniteliability to repay or right to recover or balance it byadjustments in caseof remittance heads.

Such balances should be reviewed at short-intervals

and that the outstanding of such items longer thanreasonably necessary should be avoided for the reasonsthat

. Continued outstanding of hugeamounts under Suspense Headsvitiates the accounts due to exclusionof such amounts from

receipts/charges under the relevantheads of account to which such

transactions pertain.

Frauds and misappropriations mayalso escape detection ifoutstandingbalances persist indefInitely.

.

Annual Review of Balances (ARB) report is animportant document forming the basis for compilationof Statements 8 and 16 of the State Finance Accounts.

ARB report is often submitted to theAGjust on the lastdate for their submission/issue to Headquarters. Thisleaves the AG hardly any time for effective scrutiny.Thus it becomes necessary that the whole process ofcompletion of the ARB is planned and controlled insuch a manner so that a critical study can be made atcompletion of each phase in the build of finaldocuments.

The entire exercise involved in preparation andsubmission of the ARB is quite complex and requiresextremely close scrutiny and monitoring at each level.It would, therefore, be more appropriate if the review ofall heads closing to balances is done on a monthly basisso that adequate data is available at the time ofoperation of ARB. Monthly review will also help inreducing the instances of adverse balances and makingthe normalbalancesmore realistic.

D.VargheseSr.Accounts Officer/CF

,

SOGE. 'Holistic approach is the key for success'.All India TopperTalks I

Vijay Keswani, Section Officer Probationer trainedbythis institute for Phase I training in 2006 topped the allIndia Section Officers' Grade Examination of 2007.A

gist of his approach and methodology followed fortackling some important subjects of Part I, as toldto theinstitute's Core faculty are given below for the benefitofSOGE 2008 Part I aspirants.

Constitution ofIndia

. Identify key areas ITomwhich questionscouldbeset.

Avoid conventional guides and read directlyITomthe bare act. This helps in quoting articlesand needsno further elaboration.Reading articles with reasonable pause will behelpful inreproaching the languageof bareact.

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FRs &SRs(Theory). This paper needs a subject specifIc approach.. Guides are helpful in getting the style of writing

your answers.Theory portion covered in the practical papershould invariablybe prepared as it saves timeandhelps in both the papers and such questionsshould be opted for solving ifthere is a choice.

.

FRs&SRs(Practical). This paper needs a holistic knowledge forsolving

the paper.Conventional guides are very helpful as thequestions set are well within the domain ofguides.Thorough reading of rules and Government ofIndia's orders gives a better appreciation of thesubject matter.

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CONTINUING PROFESSIONAL EDUCATION (CPE)(Institute's Faculty/Staff trained between October 2007 & March 2008)

Name, Subject & Place oftraining ,"h,--,''''

A. P.Virodkar.SAO& CF. InfonnationTechnologyLawat JudicialOfficersTrainingInstitute(JOTI),Nagpur. Business Continuity Management and CyberLaw & CyberForensicsat PoneChaptersof ISACA,ComputerSocietyof India and Institute of Internal Auditors, Pone.

D. Var2hese. SAO & CF. Infonnation Technology Law at Judicial OfficersTrainingInstitute(JOTI),Nagpur. PerfonnanceAudit,RegionalTrainingInstitute,Kolkata.

. Business Continuity Management and Cyber Law & CyberForensics at Pone Chapters of ISACA, Computer Societyof India and Institute of Intemal Auditors, Pone.

[ OUR TOPPERS ]Our institute, at the end of every training programme, conducts an evaluation test. The following

table indicates the details of the participants who secured the first and the second positions in thetests. They were awarded with token mementoes and merit certificates to sustain their interest andmotivational levels. Their offices were also intimated about it.

IMPACT OF TRAINING I

At the beginning of the LS. based courses,Entry Behaviour Test (EBT) are conducted in order toassess the knowledge and skill levels of the participantson the subject in which they would be trained. End-course evaluation tests (ECT) are also conducted. Thegap between the both i.e. impact of training at thereaction level is worked out and the participantssecuring the fIrst and second positions are rewardedwith token mementoes and merit certifIcates with anintimation to their respective offices. The next chartdepicts the position for various IS based coursesconducted between 151October 2007 and 3151 March2008.

Sometimes participants with very poor performance in the EBT, after training,end-courseevaluation tests. Few such casesare citedbelow:

IMPACTOF TRAINING

100

90

80

70

~i 60

~W50

~w 40

~ 30

~BeforeTral'ling~AtterTrai.

20

10

ITNJDIT(I) MSWORD ITAUDT(U) HVV& SN SSS 2003 AKSHMCOURSE NAME

IlEA EXCS.

had scored 70% and above in the

GENERAL COURSES MONTH & YEAR FIRST RANK SECOND RANK

Financial Attest Audit October 2007 SOO G.v. Krishnamurthi, SAO, SOO. B Narsimalu, SAOA.G. Chhattisgarh, Raipur PDCA & MABII, New Delhi

Financial Attest Audit October 2007 SOO Pola Raghunath, AAO, SOO M Nageshwar Reddy, AAOPDCA & MAB, Hyderabad PDCA & MAB Banglore

Performance Audit November 2007 Shri N Ramakant, AAO, Shri. K Srinivas, SO,DA ( P&T ) Hyderabad PDA SC Rly. Secunderabad.

Audit of Fraud, November 2007 SOO Surya Prakash, AAO Shri A.Viswanatham,SOFraud Detection Technique and PAG(CA), Hyderabad PAG(CA), HyderabadForensic Audit.

Performance Audit December 2007 SOO Uday V. Mohite, SO, SOO R R Nawik, AAODA (P&T) Nagpur DA(OF) Jabalpur

Audit of Direct Taxes December 2007 SOO K K Ajaykumar, SAO, SOO M K Mehta, SAO,PAG(C&RA) Ahmedabad AG,(C&RA) Gujarat

Audit of Direct Taxes February 2008 Shri Kalyan Chand Dhulia, AAO, SOO Vijay Kumar, AAO,PAG(Au) HP Shimla PDA(C) Mumbai

IS COURSES (LAB I)I.T.Audit March 2008 SOOK.K.Badonia,SO Smt.P.Prabhavati,AO

A.G.(W &R), Bhopal PDA,SC Rly, Secunderabad

(LAB II)M.S.Excel November 2007 SOO B.B.Bashaiah,Sr.Acctt Shri Manish Joseph Charles,Sr.Acctt

A.G.(A&E), Hyderabad PDA WRly, Jabalpur

CAATs December 2007 SOO P.D.Shrinivasu, SO Smt.J.Ukey,Sr.ArA.G.(C&RA), Hyderabad PDA,Central Rly, Mumbai

Oracle 8 with Dev.2000 January 2008 Shri Vinoo Varghese, DEO SOO Indrajeet Bhattacharya, Sr.ArDy.Director,P&T, Bhopal PDA,SEC Rly, Bilaspur

Small Business Server 2003 February 2008 Smt.Padmalata Sarma, AAO Shri P.Parmeshwaran, Sr.AccttA.G.(Au)-II,Mah, Nagpur A.G.(A&E) Hyderabad

PL/SQL Programming March 2008 SOOSubramanyam Sarma Peri, Sr.Ar SOOShiv Shankar Kalyani, Sr.C.O.PDA,SC Rly Secunderabad A.G.(A&E)-I, M.P. Bhopal

Sr. No. Name ofthe Participant Name ofthe Marks obtained Marks obtained Impactcourse inERT in ECT

1. SOOB. Bashaiah, Sr.Acctt. M.S. Excel 03 78 750/0 the A.G.(A&E)-Hyderabad

2. Shri Subramanya Sarma Peri, Sr.Ar. PL/SQL 7 91 840/0 the PDA, SC Rly, Secunderabad prograrmning- - -- - - - - -

[ OUR PRODUCTS ]Between October 2007 and March 2008, the institute had developed and disseminated five volumes of readingmaterial (including media clippings), eight case studies, two StructuredTraining Modules and two Research Papersonvarious subjects. Some important ones are discussed below:

Research Pa~

a) Red-Flags & Anti-Fraud Measures in Public

Works

This is the first ever research paper brought out by the

institute. The paper, released in October 2007,

presents various fraud indicators at 19 different

stages of public wOI:ks execution along with

preventive and detective measures. Reference was

also made to concrete examples. The paper had

received wide appr,eciationas it is extremely~sefill in

local audits while auditing public works. It is also

useful for the Public Works Department officers as

the preventive aspect is directly relevant tothem.

b) Auditing through Voucher Level

Computerization (VLC) System

This is a special project undertaken by the

institute in order to address performance problems

being faced in the field offices. The paper also aims

to simplify and demrtify the 'art' of gueryil!..~t~ --Voucher Level CO

tputerization database for

generating desired in ormation with a focus on the

recommendations ma e in the Ganapati Committee

Report. Every que~ has been discussed under

various headings naJely, query, parameters, results

and audit checks to b+xercised. The research paper,divided into five chapters, enables the readers in

understanding the cobcept of auditing in the VLC

scenario and interfacl between the Civil Audit and

Accounts wings of t!e department. The book also~

comes with a CD containing SQL syntaxes for

querying the databasbs. The user can directly use

these syntaxesby cust~miZingtheparameters oftheir

respective enviro~~mts. A special module on"Selection ofvoucher~ by CentralAudit Parties using

IDEA macros" is higijlighted.

~gital Forensics - A Demonstration (VCDs-I&II) I

As a part of a workshop on 'Audit of Frauds' held in

January 2008, a demonstration session on 'Digital

Forensics' was held. The faculty (Dr. Sachin Pandey,

renowned Forensic Auditor and resource person to

the Police Department, Government of

Maharashatra) demonstrated with the help of various

gadgets specially obtained from Mumbai, the manner

in which various cyber crimes are committed,

detected, chain of custody is maintained and forensic

audit report is prepared. The entire presentation was

videographed and released to the user offices andother sister institutes.

Structured Training Modules Ia) Preparation of Finance Accounts andAppropriation Accounts.This module could be used for a structured trainingfor step-wise preparation of all the statements ofFinance Accounts and framing comments inAppropriation Accounts. It also has few additionalinputs like "linkage of Chapter I with FinanceAccounts, preparation andusefulness of "Accounts at

I Glance" & "Combined Finance & Revenue

Accounts". q'he S-TM has b~en approved by theHeadquarters and available on ~e public folder oftheIA & AD website.

(b) Internal Control Mechanis)ns

This module, prepared with a focus on INTOSAI

guidelines, could be used for a five day course. It

highlights topics like Intern~l Auditing vis-a-visI

Internal Control and its relevan'ce in Government and

commercial accounting system~,control environment,

control activities, Risk identifiyation and assessment,

Information and Communications, Monitoring and

assessment, Information Technology control and

Audit of Internal control Auditing and Assurance

Standards with the help of case studies & exercises.The

STM approved by Headquarters office, is available in

the public folder ofthe IA&ADiwebsite.

--- -- -[ AUDIT OF FRAUD MATTERS]

FRAUD EXAMINATION IN INDIA ITHE MANDATE I

Headquarters declared this institute as aCentre of Excellence in October 2003 with a

mandate to act as a repository of informationon the subject through developing qualityreading material, case studies (national andinternational), research papers, and databaseof expert faculty and media reports.Significant developments in the matter arealso to be reported through a newsletter forinformation to the user officesand sister institutes.

Material developed & disseminated IResearch Papersi) Red-Flags & Anti-Fraud Measures in Public

Works.

Video CDsi) Digital Forensics - A Demonstration

(Vol. I & II).

Case Studies

i) Payments to contractors on the basis offictitious measurements (based on 4.1.1 ofAR 2005-06 ((Civil), Govt. of Tamilnadu &Pondicherry).

ii) Fraud Vulnerability Assessment (Anassessment of fraud vulnerability of theselected organization with constructivesuggestions for fraud prevention anddetection).

iii) Acceptance of forged and inflated collateralsecurity (based on para 4.1.9 of AR 2005-06(Commercial), Govt. ofHaryana.

Reading Materiali) Forensic Accounting & Auditing.ii) Media Clippings (CD) on Fraud Prevention

and Detection.

iii) Neural Networks in Fraud Detectioniv) Profile of a Fraudster Survey 2007.

Contact us for material Ie-mail: rtiNagpur@cag.gov.in

Ph. (0712)-2545420,2545816,2545829Fax: 0712-2562577

In the previous two issues, a brief

history on fraud examination in India

with a focus on Kautilya'sArthashastra

was covered. In this issue, an attempt

has been made to highlight presentstatus of fraud examination as a subset

of accounting and auditing. With themcrease in economic activities all over the world, the

frequency of occupational frauds (the use of one's

occupation for personal enrichment through the deliberate

misuse or misapplication of the employing organization's

resources or assets) and abuse have grown considerably.

With major accounting scandals rocking many well

established firms, the subject of fraud examination has

emerged as single most important subject out of accounting

and auditing. In India, big corporate accounting firmsdominate the consulting market of frauds and that is the

probable reason why KPMG, Ernst & Young and

PriceWaterHouse Coopers presented their surveys related tofrauds with India Focus. They have very interesting

findings. Apart from this, Indiaforensic Research

Foundation presented a report on Cyber Squatting on the

Indian public sector banks. India might be losing as much as

USD 40 billion annually due to frauds committed byemployees, according to a survey by India forensic

Research, a firm engaged in fraud examination and forensic

accounting in India. NCRCC published the report on thecyber crimes, which crystallized the damage caused by the

cyber frauds to the Indian economy.

Today, there is a dearth of such compilation with regard to

the occupational frauds noted in the government set up. In

order to bridge this gap, the institute had embarked upon

preparation of a 'Survey of Occupational Frauds in the

Government departments of India', based on the cases of

frauds reported in the audit reports of the Comptroller and

Auditor General of India for the last five years with a focus

on the key areas that were vulnerable to frauds,

methodologies followed by the fraudsters, losses suffered

and the preventive and detective action taken there of. It is

our endeavour to complete this exercisebefore the next issueof the newsletter is released.

"Corruption and hypocricy ought not to be inevitable products of democracy, as they undoubtedlyare today" -Mahatma Gandhi.

[This institute had released a series of case studies,

prepared based on the transaction audit paras reportedin Chapter IV of various State Audit Reports. In thisissue, a case study, "Acceptance of forged and inflatedcollateral security", prepared based on a para 4.19 ofthe Audit Report (Commercial) of the Comptroller andAuditorGeneralof India for the year ended on 31sl

March 2006 of the Government of Haryana has beendiscussed.

A CaseofAcceptanceof ForgedandInflated CollateralSecurity IA loan ofRs. 20 lakh was sanctioned to Mis Rajesh andCompany, Bhiwani (unit) with a stipulation that thecompany should produce a security of not less than 100per cent of the sanctioned amount. The unit offeredcollateral security of a piece of land measuring 47Kanal UMarIa in village Dmjanpur Mazra Barsidistrict Bhiwani,which was accepted at a value ofRs 45lakh that is after verification by the Branch Manager.The Corporation'sLaw Officer also checked the title ofthe security. The Corporation disbursed Rs.17.67 lakhin March 1999.

FOCUS ]Office of the Accountant General (Audit)

Haryana, Chandigarh conducted the audit of HaryanaFinancial Corporation for the year 2005-06 and foundthat Rajesh and Company was sanctioned a loan ofRs.20 lakh and as collateral security, mortgaged landmeasuring 47 Kanal II Marla in village DmjanpurMazra Barsi district Bhiwani. The unit did not make asingle instalment of repayment. When the mortgagedproperty was auctioned to recoup the loan, it was foundthat neither the unit was the owner of the mortgagedproperty nor the realizable value of the mortgagedproperty was equal to the loan sanctioned.

In view of this, the Corporation could not raisethe lent amount even when the land was auctionedtorecoup the loan. The Corporation received an offer ofRs.2.5 lakh only, but the property could not be sold asthe mortgager was notthe owner of the property.

Assessing officer circumvented all the preventivecontrols in the system resulting in incorrect assessmentof the property. Had the title of the mortgagedpropertybeen verified, the property could have been mortgagedfor collateral security and recovery of loan could havebeen possible.

Auditin2 vs. Fraud Examination IMany fraud examiners have an accounting background. Indeed, some fraud examiners are employedprimarily

in the audit function of their organizations. Although fraud examination and auditing are related, there are someprincipal differencesas detailed below.

Issue Auditing

Timing RecurringAudits are conducted on a regular, recurring basis

GeneralThe scope of the audit is a general examinationof financial data

OpinionAn audit is generally conducted for the purposeof expressing an opinion on the financialstatements or related information

Non AdversarialThe audit process is non adversarial in nature

ProofFraud examiners approach the resolution of afraud by attempting to establish sufficientproofto support or refute an allegation of fraud.

Techniquesfor the examination of fraud issues differ considerably from other disciplines. Because offtaud'sfundamental elements, several axioms must be considered, regardless of thenature or extentof the fraud.

(Source: ACFE)

Scope

Objective

Relationship

Methodology Audit TechniquesAudits are conducted primarily by examiningfinancial data.

Presumption Professional SkepticismAuditors are required to approach audits withprofessional skepticism.

l

Fraud Examination

Non RecurringFraud examinations are non recurring.They are conducted only with sufficientprediction.

SpecificThe fraud examination is conducted to resolvespecific allegations.Affix BlameThe fraud examination's goal is to determinewhether fraudhasbeen/is occurring,and todetermine who is responsible.AdversarialFraud examinations, because they involveefforts to affix blame, are adversarial in nature.

Fraud Examination TechniquesFraud examinations are conducted by(1) document examination; (2) review of outside

data such as public records; and (3) interviews.

- --[ EDUCATION COLUMN ]

LEGISLATIVEMEASURESTO DEALWITH ECONOMIC CRIMES IN INDIA-AN OVERVIEW I

Economic Offences fonn a separate category of criminal offences. Economic Offences not only victimizeindividuals with pecuniary loss but can also have serious repercussions on the national economy. Economicoffences, such as counterfeiting of currency,financial scams, fraud, money laundering, etc. are crimes which evokeserious concern and impact on the Nation's security and governance.

This section seeks to present a perspective on the legislative measures in force to deal with various crimes irIndia. A table listing various economic offences, the relevant legislation and the enforcing authorities in India i~given ata glancebelow:

THE FRAUD TREE I

LarcenyLarceny means felonious

stealing,taking and carrying or drivingaway with another persons' property.

Obtaining possession o'property by fraud, trick or devise witlpreconceived design or intent t<appropriate, convert or steal i:"larceny" .

Understanding the variouscategories and types of frauds that canbe perpetrated against an organizationwill assist key stakeholders indetermining the fraud risk universeinherent in their organization. Thethree main branches of fraudhave beenAsset misappropriations, Fraudulentstatements, and Corruption.

In this issue, a chart showingexamples of fraudulent activitiesrelated to "Asset misappropriation"has been given. Some of them arediscussed below:

SkimmingSkimming is the removal of casl

from avictim entityprior to its entry itan accounting system. Employee:who skim from their companies steasales or receivables before they anrecorded in the company booksBecause of this aspect of their natureskimming schemes are known as off.book frauds. They leave no audit trailSkimming can occur at any poinwhere funds enter abusiness.

(To be continue~

"One must beware of ministers who can do nothing without money, and those who want to do everythingwith money." -Indira Gandhi

Sr. No. Economic Crimes Acts of Legislation Enforcement Authorities

1. Tax Evasion Income Tax Act Central Board of Direct Taxes

2. Illicit Trafficking in Contraband Goods Custom Act 1962 Collectors of Customs(Smuggling) COFEPOSA,I974

3. Evasion of Excise Dutv Central Excise & Salt Act, 1944 Collectors of Central Excise

4. Cultural Obiect's Theft Antiauitv and Art Treasures Act 1973 Police/ CBI'

5. Monev Launderino Foreion Exchanoe Rel!Ulations Act 1973 Directorate of Enforcement

6. Foreign Contribution Manipulations Foreign Contribution (Rel!Ulation) Act, 1976 Police/ CBI

7. Land Hiiackin",/Real Estate Fraud IPC Police/ CBI

8. Trade in Human Body parts Transplantation of Human Organs Police/ CBI

9. Illicit Drug Trafficking Narcotics Drugs and Psychotropic NCB'/Police/ CBISubstances Act t 985 & NDPS Act, t 988

10. Fradulent Bankruptey Bankin!! Rel!Ulation Act 1949 CBI

II. Corruption and Bribery of Prevention of Corruption Act, 1988 State/Anti Corruption Bureaux/Public Servants Vip'ilance Bureaux/CBI

12. Bank Fraud IPC Police/ CBI

13. Insurance Fraud IPC Police/ CBI

14. Racketeerin!! in Emplovment IPC Police/ CBI

15. Illegal Foreign Trade Import & Export (Control) Act, 1947 Directorate General of ForeignTrade/CBI

16. Racketeering in False Travel Documents Passport Act, 1920/IPC Police/ CBI

17. Credit Card Fraud IPC Police/ CBI

18. Terrorists Activities POTA-2002 Police/ CBI

19. Illicit Traffickinl! in Arms Arms Act, 1959 Police/ CBI

20. Illicit Trafficking in Explosives Explosives Act, 1844 & Explosive Police/ CBISubstance Act, 1908

21. Theft of Intellectual Property Copyright Act, 1957 (Amendments 1984 Police/ CBI&1994)

22. Computer Crime/ Software Piracy/ Copyright Act, 1957/ LT. Act 2000 Police/ CBICvber Law

23. Stock Market Manipulations IPC Police/ CBI

24. Company Fraud (Contraband) Companies Act, 1956/IPC MRTP Act, 1968 Police/ CBI

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][ AUDIT COLUMNRed fla2s and Anti-Fraud Measures in Public Works -Part 1111

In the previous two issues we attempted to a provide a list of red-flags and anti-fraud measures for certain importantactivities in Public Works such as Tendering,Award of Contract, Advance payment. Other key issues have beenfocused upon in this issue.

Redflags(Fraudindicators)

----------- ---Return of retention money and extention of time

Extension of time given without sufficientreasons

Early termination of the contract------(a) (Because of collusion between contractor andthe contracting authority) contracts on which thecontractor could lose money were terminatedprematurely, without seizure of the security deposit

(b) After terminating of contract on the basis ofnon-progress as per the contract agreement whichrequires seizure of his performance bond andrealization of the cost for completing theremaining work from him, which may becompeted through other contractor, the contractmay be finalized by returning the whole amountto the contractor himself.

Alterations, additions and omissions

Some items were altered or varied in quantity orquality or even omitted from the work, all to theadvantage of the contractor. For example :a) cost estimates called for high density polythenepipes, but later, the material specified was said notto be available in the market, and more expensivegalvanized iron pipes which were in thecontractor's store were used.

b) The quantity of cement concrete works in the

proportion I :2:4 the quoted rate for which was

lower than the estimated rate, was reduced

substantially, while the work in the proportion,

1:4:8 which was quoted at higherrates than

estimated cost, was increased.

--- -- - --Preventive

Antti-fraud measures

Detective

A work diary is maintained describing thedirection contained by the Engineer setting of thereasons why part of the work were not completedon time and describing the directions given todeal with the situations. The contractor initials

these notes. Only when the reasons are justifiedis the contract extended without penalty and thenonly with proper authority.

--

------

In both these situations, details of actions taken areexplained and it is ascertained whether or not thejustification for taking the action reasonable.

---

a) Payment is made at the price fixed in the tenderdocuments even if material of higher capacity thanneeded and costing more were used.

b) If any variation in some item or omission of the

whole item is necessary, the reason for it is

explained and the sum is adjusted in the cost

(designs) and approved by the competent

authority.

'70% sayIndia Ine to be a fraud havenin next2 years!' IIndia is perceived as a 'fraud haven' with over 75% of

the respondents to a KPMG survey considering fraudremaining undetected as their highest concern followed byinadequacy of measures against the offence and unethicalbehavior of employees.

The findings of the report suggest that the threat offraud comes mostly from within the organization. Majorityof the respondents believe that the employees pose themaximum threat to an organization and that seniormanagement is more likely to commit fraud. Organizationsin India that remain passive in their approach to deal withfraud may be a perfect breeding ground for fraud. It comes asa surprise that even the larger companies operating in Indiado not have adequate risk management strategies.

- --- - - --- --

Check whether reasons were recorded for notcompleting the work in time. If delay is due tocontractor's omissions, verify why penalty wasnot levied.

---

---------Select contracts terminated prematurely and checkwhether security deposits of contractors were seized.

-Check whether extra expenditure incurred forcompletion of work through the new contractor wasrecovered from the old contractor who abandoned the

work and his security deposit was not refunded.

i) Check the reasons why expensive material wasused which was not in the estimates.

ii) Ifreasons are recorded, verify thejustificationgiven.iii) Check whether payments made were as per theprice fixed in the tender or not.iv) Check whether any extra amount was paid.

i) Select cases of alterations, additions and omissions.ii) Check reasons or circumstances under which the

original contractor would have omitted certain itemsof work.

iii) Check why the same work was given to new

contractor at higher rates.

iv) Since while accepting tender original contractor

agreed to do that item of work at agreed rate then left

that item of work, verify whether extra cost was

recovered from the original contractor.-- -- - ---

DOWNI. CAUSE THE VICTlM'S BANK

ACCOUNT TO SHOW A LARGECREDIT (14)

2. ACT OF SCAMMING (10)4. TO BECOME VICTIM OR BE

FOOLED (8)6. METHODS OF FUNDS

TRANSFER (10)8. AN ILLEGALACTIVITY (4)

(Answers 10the previous crossword on synonyms of "Fraud")Across: 3. spoofing, 7. incrime, 8. threatening, 10. cyberdefamatioDDown: 5. salamiattaek, 2.pornograpby, 6. backing, t. pbisbing, 4. eyberstalking, 9. greed }