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Citi fraud: Cos draw up fresh checklist
January, 06th 2011

The Citibank fraud, which has claimed the Delhi-based Hero Group as its biggest corporate victim, has thrown the treasury operations of cash-rich corporates into a tizzy. Chief financial officers (CFOs) of some of the biggest companies across sectors admitted that more checks and balances need to be put in place to prevent a repeat . With India Inc's treasury operations growing by leaps and bounds, greater vigilance is a must, CFOs felt. TOI spoke to a cross-section of corporate finance chiefs to come up with some ideas on additional checks that will help plug future frauds.

Top of the list of fresh filters is the need for frequent audits that report either to the CEO or the board's audit committee . "Independent audits of aconcurrent nature, reporting right to the top on a very frequent basis is one way of weeding out frauds," said V M Mohan , joint president of corporate finance, India Cements . Globally, multinational companies conduct frequent audits of different typeslocal internal, local external, headquarters internal and external , etcwhich are all handled by different sets of agencies. "That way, even if something is brewing, it will quickly show up on the radar," said Mohan. A surprise audit every once in a while over and above what's already in the pipeline is also a good idea, he said.

Beyond regular audits, CFOs also recommend direct and independent confirmations of all investments either by the audit teams or by the top management. "Treasury should directly write to the banks for a confirmation, may be once a month instead of once a year," said N Srinivasan , director finance, Murugappa Group.

If the CEO gets regular confirmations from the banks independent of the account manager and the review period is more frequent, chances are any irregularities will immediately pop up on the radar.

Trouble, he said, breaks out when companies overreach their risk appetite. "All manufacturing companies have strict investment guidelines on bank deposits, mutual funds and portfolio schemes and government bonds with detailed instructions on how much can be invested in what with what kinds of ratings," he said. So any product that offers nearly double the market rate of return should immediately attract attention. No rated paper can give such high returns and unrated paper is bad news.

Beyond pure risk prudence , the other fraud filter is to "segregate functions between the back office and front office in the treasury department ," said the CFO of a Mumbai-based automobilesto-IT conglomerate. If the back office does the confirmation for an investment made by the front office, the split in functions will act as a natural audit. Also "auditors should get confirmation from depository bodies and banks more frequently and the company should have sub-limits for its equity exposure" . A sub-limit offers a ceiling for what percentage of funds will go into higher-risk paper. The moment a particular investment crosses that limit, it will trigger a probe.

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