Corporates Reviewing their Risk Management Policies after Satyam Scam

January 11, 2009: Just as security acquired a priority in corporate establishments after terrorist attacks in Mumbai, companies too have begun to review & document their risk management policies and practices ever since scam broke out at Satyam Computers, which not only caused investors loose thousand of crores but allowed India’s corporate integrity fall to suspicion, according to a quick analysis of The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

The ASSOCHAM Internal Assessment on this subject has feedback of over 400 lead corporates affiliated with it, however, unitedly said that to deter possible corporate frauds in their entities, they have commenced re-codifying their risk management policies.

Nearly 90% of them have said that companies henceforth will spend enormous amount of money may be 30% of their overhead expenses on implementing and complying with Clause 49 of SEBI’s Listing Agreement as these provide for enough regulations to prevent corporate frauds.

Although Clause 49 of SEBI’s Listing Agreement force management and Boards of directors of corporate establishments to accept responsibility for not issuing accurate financial statements, somehow it seems corporates got out of them in one pretext or other, felt 85% of corporates that participated in the Internal Assessment analysis of ASSOCHAM through e-commerce mode.

However, the corporates non onwards would put in place internal control assessment in a manner so that Anti-fraud programmes are killed before their sprouting, felt majority of participants, especially after the fudging of accounting came to limelight at such a lead corporates of knowledge economy.

80% of them argued that putting these programmes and controls in place will help organization to set a tone of zero tolerance for fraud and create a mechanism for employees to escalate fradualent activities to appropriate authority.

About 50% of corporates pointed out that the control systems that are in vogue with most of corporate entities are presently geared to detect errors but not fraud and therefore, the need for stringent internal control system to completely plug scope of corporate frauds was emphasized in the ASSOCHAM assessment on priority.



The Chamber’s analysis also points out that hitherto those responsible for monitoring organisational internal control including the internal auditors do not have the required training, experience and explicit mandate to review the control through the lense of fraud.

Hence, on the completion of many fraud investigations, it is often noted that telling signs of a fraud being perpetrated were apparent but no one recognize them since most of the companies do not have anti-fraud policy.

The Chamber has therefore evolved a multi-pronged strategy to put a full stop to future corporate frauds which include that organizations that become more global, decentralized and complex, their management should be vigilant enough to prevent and detect fraudulent activity.

It also emphasizes that an organization that pro-actively identifies and assesses the fraud risk vulnerability impacting it and builds control to deter, prevent or detect these risks is better positioned to reduce the impact and likelihood of these susceptibilities rather than an organization that choose to adopt the “we will cross the bridge when we come to it” approach.

According to ASSOCHAM, periodic and comprehensive risk assessment at the entity and process levels, especially focusing on fraud is the first proactive step a company can take towards fraud risk management. Organizations need to build a risk universe of the processes, locations, transactions and systems, as well as of positions that are vulnerable to a fraud threat. Fraud Risk Assessment (FRA) enables organizations to not only identify potential fraud risk but also the schemes/scenarios of how the fraud may be perpetrated and the opportunities available.

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