With government’s focus on building infrastructure India is soon expected to witness spend of more than $1 trillion on Infrastructure building. New ventures are likely to aim the pie of this spend and many new business formations are likely to be created. Idle money would find new ways to make fortunes.
The Certified Forensic Accounting Manual classifies the world of frauds in two ways
1. Frauds Against Business – These are the frauds comitted by employees and vendors against Infrastructure companies.
2. Frauds for the Business- These are the frauds comitted by the business owners against banks, regulators and tax authorities.
The focus of this article is to elaborate how the infrastructure companies are exposed to frauds against the business.
Typically, large infrastructure projects rely on large scale procurement of goods and services. Even after centralizing procurement for multiple projects, companies continue to have significant dependence on local third parties for sourcing material, equipment and labour. As the project progresses and faces deadline pressures, exceptional approvals for procurement become frequent, with little focus on internal controls or due diligence. For companies that have multiple projects running simultaneously, these exceptional approvals further reduce the span of control, effectively increasing the risk of procurement fraud.