Forensic Audit (Financial Institutions & IBC, 2016)

Abstract

Opportunity-2

Financial Sector

In May 2015, the Reserve Bank of India (RBI) mandated the banks to use Forensic Audit as a preventive and investigate tool to detect frauds and deal with “red flagged accounts†(RFAs) of corporate borrowers over `50 Crores. After five years, the problem of NPAs still remained acute in the case of large corporate loans. The introduction of beneficial ownership provisions in the Companies Act, 2013, Insolvency and Bankruptcy Code 2016 (Section 29A), banks’ Know Your Customer (KYC) and Anti Money Laundering (AML) provisions etc. also require deployment of Forensic Audit methods to identify the actual beneficiaries of funds disbursed by the banking sector.

IBC, 2016

The following types of transactions/conduct can be identified as the ones covered under the IBC, 2016, and related avoidance proceedings which are essentially aimed at compensating the estate of the insolvent company:

a) Preferential transactions under section 43

b) Undervalued transactions u under section 45

c) Transactions defrauding creditors under section 49

d) Extortionate credit transactions under section 50

e) Fraudulent trading under section 66(1)

f) Wrongful trading under section 66(2).

There are thousands of cases under the Insolvency and Bankruptcy Code. It is almost a ritual for the Resolution Professionals (RPs) to take an opinion from the CMAs for such matters. CMAs are looked upon as the most competent professionals for this kind of an assignment. This can be a good starting point to gather experience in the field of Forensic and Transaction Audit.