Suitability of forensic accounting in uncovering bank frauds in India: an opinion survey
| DOI | https://doi.org/10.1108/JFC-07-2020-0126 |
| Date | 12 November 2020 |
| Published date | 12 November 2020 |
| Pages | 284-299 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Mayank Gangwani |
Suitability of forensic accounting
in uncovering bank frauds in
India: an opinion survey
Mayank Gangwani
Indian Institute of Technology Delhi, New Delhi, India
Abstract
Purpose –Economic robustness is the heart of any country’s prosperity. It is no wonder that economic
progression is a crucial force that keeps a nation rolling on its wheels. As economic well-being is such an
importantpiece in the jigsaw of a country’s health, economic shocks mustbe kept at a bare minimum. India in
recent years has experiencedvarious banking failures and scams that put the financialsystem at stake and
crushed investor confidence. There are examples aplenty of banks collapsing because of siphoning and
diversion of funds in risky propositions that ultimately put the depositors and financial institutions at the
receiving end. As perReserve Bank of India’s latest annual report, it has been reportedthat there have been
bank frauds wortha whopping Rs 72,000 crore in the financial year2019. Therefore, this study aims to obtain
the perception of Academicians and Practitioners regarding forensic accounting’s suitability in uncovering
bank frauds.
Design/methodology/approach –A strategically constructedLikert scale questionnaire was designed
to obtain perception of Academicians and Practitioners regarding forensic accounting’s suitability in
uncovering bank frauds. The analysis was performed by applying the “non-parametric test”on the data
gatheredfrom the questionnaire.
Findings –By testing the relevant hypotheses,it has been found that insiders working in the bank team up
with outsiders in perpetrating fraudulent activities resulted in bank failures, that both forensic accountant
and traditional accountant weredifferent from each other and that adoption of forensic accountingin India
will aid regulatoryauthorities in doing their job more efficiently.
Research limitations/implications –This study uses purposive sampling, as it only takes the
perception of college and professional course students (chartered accountants/company secretary/certified
management accountant)and teachers having knowledge in accounting whichmade sample size quite small
(156). This study only covers frauds that were conjured in the banking industry and hence does not touch
upon scams that occurred in other financial institutions. This study is confined to Indian banks only. This
study usesan opinion survey to ensure the suitability of forensicaccounting in uncovering bank frauds.
Originality/value –The originality of thisstudy has been checked through Turnitin plagiarism software
in which the similaritywas 8%.
Keywords Forensic accounting, Bank fraud, Economic and financial crime, Money siphoning,
Bank failures
Paper type Research paper
Introduction
The creation and provision of credit are imperative to keep the economy rolling on its
wheels. A sound and transparent financial system is imperative for the growth of the
First and foremost, the author would like to thank his family for their support and motivation they
provided throughout the journey of this research paper. The author would gratefully acknowledge
the guidance, support and suggestions of my friends and seniors at each and every step during the
work. The author have not received any funding from the institution.
JFC
28,1
284
Journalof Financial Crime
Vol.28 No. 1, 2021
pp. 284-299
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-07-2020-0126
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
economy. Instead of driving the economy to new heights, banks are often found to be hand
in glove with perpetrators of frauds that lead to economic and financial turmoil. Bank
failures not only put depositor’s money at stake but also deprive the financial system of
liquidity. India in recentyears has experienced various banking failures and scamsthat put
the financial system in a topsy-turvy situation. Unscrupulous affairs at Punjab National
Bank, Punjab and Maharashtra Cooperative Bank, Yes Bank, ICICI Bank, Infrastructure
Leasing and Financial services (Non Banking Finance Company) and Dewan Housing
Finance Company (DHFL) are just a few examples that sent shock-waves across the whole
financial system. Several scams and crises brought intense scrutiny towards the ability of
auditors and accountants in detecting cooked books and dubious financials of these banks
and financial institutions. This is all the more reason to implement forensic accounting in
preventing, detecting and investigating such kind of fraud-related activities. A forensic
accountant is an accountantwho makes use of all the accounting, auditing and investigative
skills which will be suitable during court proceedings by way of public forums, argument
and in resolving conflicts (Zysman,2001). The skillset of a “forensic accountant”and auditor
are quite different from a traditional accountant and auditor whose primary duty involves
reviewing the annual accounts. In recentyears, bank funds are diverted and siphoned to the
phony accounts of related entities such as what happened in the event of DHFL and Yes
bank. This causes a huge loss of money bearingdire repercussions for the financial system.
Despite every effort to curb corruption, asset misappropriation and fraudulent financial
reporting, fraud always finds a way to slink through and hurt the financial system in some
way or the other. So banks must take assistancefrom “forensic accountants”in dealing with
such group-related entitiesby curbing embezzlement, money laundering and round-tripping
from tax haven country. Under the NL Mitra committee which was appointed by Reserve
Bank of India (RBI) in 2001, the India Forensic research foundation got legal recognition in
2008. The role of Serious Fraud investigation officer is gaining eminence swiftly in light of
such frauds. India currently has various agencies to combat fraudulent activities and
corrupt practices such asForeign Exchange Management Act, CBI’s economic offencewing
that looks into financial fraud-related matters and central vigilance commission that deals
with corruption (Table1).
In all these bank frauds that have happenedin the past two to three years highlighted the
involvement of promoters, management and CEO of such banks with persons who directly
or indirectly engaged in fraudulent activities.Depositor’s trust banks with their money and
these banks then provide loans for the betterment of social infrastructure. Banks declaring
themselves insolvent is deleterious for the economy. This is detrimental to the financial
system. Banks are on the verge of being merged because of rising problems of non
performing assets (NPAs) which is mainly because of banks engaging in fraudulent
practices by extending loans to subprime borrowers in exchange for monetary and non-
monetary benefits as seen in the event of ICICI Bank and Yes Bank situation. As per the
information furnished by the Minister of State for Finance, Indian banks lost an amount
worth Rs 110 crore to online theft and ATM fraud in the previous financial year 2018–2019.
According to a report by financial cost of fraud (2019), global losses suffered because of
fraud was $5.127tn, whereasas per RBI data of 2019, banks frauds worth Rs 2.05tn were lost
in around 50,000 cases in which State Bank of India, ICCI bank and Housing Development
Finance Corporation bankreported a maximum number of cases. As is evident from a steep
increase in computer and online theft (cybercrime), regulatory agencies have failed in
preventing security scams and a wide range of cooperative banks falling apart provides
enough evidence to strengthenthe case for the need of forensic accountants. When speaking
about the fight on terrorism, Chancellor of the Exchequer Mr Gordon Brown, former Prime
Uncovering
bank frauds
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