Forensic Accounting and Investigation (Essay Sample)

Forensic accounting and investigation Institutional AffiliationStudent’s nameCourse codeTutor’s nameDate INTRODUCTION From the famous Enron, WorldCom and now Satyam Computers, it now indicates that fraud is the primary crisis that is intensifying both in it occurrence and sternness (Winkler, 2010). Evidence from most of the researchers' findings has indicated more and more fraud cases have questioned the integrity of the company’s financial documents, erosion of investor’s buoyancy concerning the importance and trustworthiness of books of accounts, and contribution to substantial economic losses (Kripalani, 2009). The alarming rates of white collar corruptions necessitate exemplary punishments, unbending punishments, and efficient implementation of the law with the veracious spirit. Corporate fraud committed by Satyam Computers back in 2009 is an authentication to the fact that the knowledge of demeanor is influenced to a great by man ambition, voracity, and thirst for money, power, glory and recognition (Bhasin, 2013). Contrary to Enron that was brought down by agency problem, Satyam Computers fraud was due to the tunneling effect. According to Sheth, Range, and Anand (2009), fraud is a global occurrence that impacts all the sectors of a country's economy. This concept entails an array of illegal activities and illicit acts involving misrepresentation or intentional deception. According to Basilio and Patelli (2012), fraud happens when individuals or a firms deals with deception or misrepresentation with the aim of making unauthorized benefit either to an individual or the entity. Regarding Saytam Computers fraud, it is termed as corporate fraud. Corporate fraud is both a political and business scandal that crops with the expose of misdemeanors by principal directors of large companies. Most of these offenses involve compound devices for overstating revenues, abusing funds, belittling expenses, underreporting the existence of liabilities, overvaluing corporate assets, with the liaison of officials (Yardley and Timmons, 2010). Satyam Computers was a consultation and information technology services that were based in Hyderabad, India. It foundation dates back in 1987, having being founded by Ramalinga B. Raju. Satyam Computers was regarded as an icon in the IT business in that at one point it had over billion dollar revenue. The firm offered IT services in several sectors and was listed on the Euronext and the New York Stock Exchange. Satyam Computers had gone multinational and had covered over 67 countries across the globe. As per 2008 report, it had employed 40,000 IT experts across its affiliates firms in the UK, USA, the UAE, Hungary, Canada, China, Singapore, Japan, Australia, and Egypt. It had incorporated over 655 global companies with 185 of these were a Fortune 500 corporations (Singh, Kumar, and Uzma, 2010). Back in 2009, the company Chairman Ramalinga resigned after informing the company’s directors and the Securities and Exchange Board of India that the books of accounts had been doctored. According to Ramalinga, the balance sheet of 30th September 2008 had figures that had been inflated both cash and bank balances. The balance sheet value of $1.47 billion was overstated. The $1.07 billion cash owned was just a ghost. Satyam Company inflated its income quarterly for many years for the purpose of meeting the expectations. On October 17, 2009, the books exaggerated quarterly profits by 97% and revenue by 75%. It was alleged that Mr. Ramalinga the internal auditors employed a variety of methods to execute the fraud (Iyengar and Karamouzis, 2009). Mr. Ramalinga used his laptop to fashion multiple bank account to infiltrate the statement of financial position with the figure that did not exist. The statement for comprehensive income was also overstated through the accrued interest from the bogus accounts. In his confession, he claimed that he had created six thousand forged remuneration accounts over the past years and distributed cash to this accounts. More interestingly, the company’s head internal auditors drew counterfeit client’s personalities and produced false accounts against their names to infiltrate returns (Kahn, 2009). Many reasons can be cited as the reason behind the fraud in Satyam Company. The ownership of the Satyam Company is blamed to some extent. Most of the venture in India are family-owned which lead to concentrated business control. In such cases, independent directors agree to act in the interest of the family members. These directors ignore the interest of the shareholders and work out the way to benefit the family owners (Bhandari, 2009). Some of the corporations today are structured in a pyramid way. This structure is made of some separate line of business. A variety of ventures is considered as one entity and managed by one group at the top. In such cases, revenues can be transferred from one firm to other affiliates which are a primary source for tunneling (Shivanna, 2010). Tunneling is defined as a process where control groups shifts revenue from one firm to another firm where they own bigger shares (Brown, Daugherty, and Persellin, 2014). One of the disadvantages associated with pyramid organization is that it is problematic for owners to monitor inner activities of ventures (Lam, 2009). Due to the consolidated control of business and pyramid business structure, the board of directors at Satyam Company did not carry out their obligation independently. Due to conditions, they sanctioned the purchase of family-owned firm of Mr. Raju, Maytas Properties, and Maytas Infrastructure. This company was not IT related and interestingly, Mr. Raju was the majority shareholders in Maytas than in Satyam Company. In this case, the structure of ownership played a bigger role in vindicating the directors’ performance in another way (Yardley and Timmons, 2010). Most of the major fraud start as a simple issue that may go unnoticed. In achieving the intended befits, the first step entails manipulating the books of accounts by little differences (Winkler, 2010). When these manipulations go unnoticed, it becomes a habit in each financial year until the manipulation gets transformed to a blunder and then to a larger fraud. In the case of Satyam Company, Mr.Rajalinga had to manipulate the books of accounts in every quarter to cover the previous quarter gaps. In his confession, he termed the fraud as riding on a tiger, unfamiliar on how to get off without being consumed. When the situation becomes worse, he confessed to the fraud that he committed (Sheth, Range, and Anand, 2009). Once a fraud has occurred it is the duty of internal, external auditors, directors and stakeholders in corporate governance to prevent other firms from involving themselves in such cases. Satyam Company scenario presents a concrete evidence of corporate frauds, and solutions have to be found for other Indian firms from suffering the same fate as Satyam Company. After the fall of Satyam Company, Indian regulators commenced towards an availing mechanism that will enhance corporate governance within the country. The Securities and Exchange Board of India is the central supervisory authority in the Indian stock market. In it is proposal, it mandated that companies should strictly follow all the companies regulations stipulated to maintain good governance standards. Despite all these measures by the regulator, it is hard for businesses in India to make changes in their criteria in the short run in preventing further frauds. For these rules and regulation to be effective, exemplary rules should be introduced (Kahn, 2009). The government of India should take an initiative by being strict in its laws. The state can initiate this from the roots which are mainly through bribery. Both the bribe giver and taker should be punished severely. With such strict measures taken, it will assist in preventing further corruption cases as those in loved will fear being caught and face the stipulated strict rules. One of the rules should state that those found dealing in fraud cases should be locked behind bars and their assets seized. They should serve as examples and create fear among those attempting of committing the same (Basilico, Grove, and Patelli, 2012). Additionally, there ought to be duties of companies towards their employees. Workers should be motivated to whistle blow in case of scam or fraud cases. Such cases will eliminate evil and reduce the possibility of dishonesty within India’s organizations. Employees should be encouraged that it is their duty to disclose any unethical behavior of the board members or any employees of the company without being affected (L...