Let’s Discuss Some Serious Stuff: Fraud Reporting in India !

Alright, team, let’s get into some serious business. Today, I want to talk about something that’s always lurking in the shadows but needs the light of day—fraud. It’s a word that makes any compliance officer sit up straight, and for good reason. Fraud not only impacts the bottom line, but it erodes trust, disrupts organizations, and damages reputations. So, how do we tackle it? Let’s walk through how fraud is reported in India and what mechanisms are in place to keep companies (and individuals) on the straight and narrow.

The Bigger Picture: What Exactly is Fraud?

First, let’s define what we’re dealing with. Fraud, in simple terms, involves any act of deception intended to result in financial or personal gain. In our corporate world, this could mean anything from financial misstatements and falsifying documents to insider trading or misusing company resources.

But here’s the kicker—not every kind of fraud is equally obvious. Sometimes it hides behind complex transactions or relationships, which brings us to related party transactions (RPTs) and conflicts of interest (COI). It’s crucial to identify these red flags and address them before they snowball into something bigger.

The Reporting Pathways: How Fraud Gets Flagged

India has a comprehensive system in place for reporting fraud. But, knowing the how is just as important as knowing the what. We’ve got a couple of heavyweights here, so let's dive in.

1. The Companies Act, 2013

If you’ve been through compliance training (and I know all of you have), you’ve probably heard about this one. Under Section 143(12), if an auditor suspects fraud in a company, they’re required to report it—stat! Fraud above ?1 crore? That gets reported directly to the Central Government. For frauds below that threshold, it goes to the Audit Committee or Board of Directors.

Why is this important? Because, at the end of the day, the company needs to stay transparent. And guess what? It’s not just the auditors who are responsible. We’re all eyes and ears when it comes to catching fraudulent activities.

2. SEBI and Listed Companies

For those working with or in listed companies, the Securities and Exchange Board of India (SEBI) steps in with the Listing Obligations and Disclosure Requirements (LODR). If there’s a fraud or any material information that can impact a company’s performance, it must be reported to the stock exchanges. No delay. SEBI doesn’t take kindly to secrets.

Now, some of you might be thinking, “But, what about whistleblowers?” Great question! SEBI also ensures companies have a whistleblower mechanism in place, encouraging employees to speak up if something’s amiss. So, no more turning a blind eye.

3. RBI and Banking Fraud

For those in the finance sector, fraud isn’t just a possibility—it’s something you actively defend against every day. The Reserve Bank of India (RBI) has stringent rules for banks. Any fraud above ?1 lakh? Report it to the RBI. If it’s above ?3 crore and involves public officials, it gets escalated to the Central Bureau of Investigation (CBI).

Trust me, if you’ve seen how these reports work, it’s no joke. These reports demand detail and precision. And once it’s filed, there’s no sweeping things under the rug.

4. Prevention of Money Laundering Act (PMLA), 2002

Now let’s talk money—literally. The PMLA ensures that suspicious financial transactions, especially those that could involve money laundering, are flagged and reported to the Financial Intelligence Unit (FIU). This is especially relevant for companies with high-value transactions or those dealing internationally. Fraudulent financial activities are a big red flag here.

We All Have a Role

Okay, so we know what fraud is and how it gets reported. But here’s where it gets personal. We’re all responsible. Whether you're on the front lines in sales, sitting in finance, or handling operations, everyone plays a part in keeping fraud at bay.

I remember a time when a small discrepancy in accounts seemed like a minor error, but upon digging deeper, it turned into a major fraud discovery. That’s the thing with fraud—it can start small, almost unnoticeable, and grow over time if we don’t address it.

What’s Coming Next?

This is just the beginning, folks. Over the next few weeks, we’ll be exploring roles and responsibilities in fraud reporting, how investigations are conducted, ways we can prevent fraud, and what sanctions look like when the hammer comes down. It’s going to be an eye-opener, so stay tuned!

Let’s Keep It Honest

It’s not enough to know that fraud exists. The real strength lies in being vigilant, creating an environment where we can discuss it openly, and reporting it when we see it. Fraud is the kind of thing that thrives on silence—so, let’s not give it a place to hide.

As your compliance officer, I’m here to make sure we stay on the right side of the law, but it’s a team effort. If you ever come across something that doesn’t sit right—whether it’s a financial transaction that seems off or a relationship between parties that raises questions—don’t hesitate to raise your hand. Trust your instincts. Let’s keep our organization a fraud-free zone.

So, next time someone brings up “serious stuff,” know that it’s not just compliance lingo—it’s about safeguarding the trust, transparency, and integrity of what we do every day.

Remember, compliance isn’t just a department. It’s how we work.

You Compliance Officer..

Kalpathy G Lakshmi Vipin