Corporate affairs ministry gears up for early detection of fraud

Technology will be at the forefront of efforts by India’s ministry of corporate affairs, or MCA, to detect corporate frauds, said an official at the ministry.

The ministry, according to this person who did not want to be identified, will mine its database of reports filed electronically by companies and their auditors, follow up on public complaints, media reports, and information from whistleblowers to detect corporate frauds early.

MCA has been at the forefront of recent investigations into Satyam Computer Services Ltd, whose founder admitted in January to having fudged the company’s accounts over the years to the tune of at least Rs7,136 crore. Even as these investigations continue, the company’s ownership has changed hands in a deal facilitated by the government, and it is now controlled by Tech Mahindra Ltd and goes by the brand name Mahindra Satyam.

Apart from using technology and following up on reports and complaints, MCA will also try to coordinate better with stock market regulator Securities and Exchange Board of India (Sebi) and banking regulator Reserve Bank of India (RBI), said a second MCA official, who, too, did not want to be identified.

All the new measures are part of MCA 21, the ministry’s e-governance initiative.

“Data mining is a focus area for the next generation MCA 21 programme where we plan to make the best use of technology and data to detect corporate frauds. The National Institute for Smart Government (NISG) is working on a concept paper on how to knit technology with the available data so that the ministry gets best information on every company registered with it,” said the first MCA official.

To be sure, the quality of the e-filings by companies and MCA’s own monitoring of these needs to improve. Pavan Kumar Vijay, managing director of Corporate Professionals (India) Pvt. Ltd, a Delhi-based research outfit dealing with corporate analysis, said: “Over 50% companies today don’t do e-filing. When MCA sends them notices, most often they are returned undelivered. Perhaps the ministry needs to start an operation to plug this loophole. One such move can be publishing defaulters’ lists in newspapers.”

Based in Hyderabad, NISG works with the Union and state governments with their e-governance initiatives.

The first MCA official said NISG would submit the concept paper on new generation MCA 21 before the end of this fiscal year and that the project would be launched sometime next year.

The second official said the ministry would start using the so-called extensible business reporting language (XBRL) in an effort to work closely with Sebi and RBI, which are also migrating to XBRL.

XBRL is an electronic format for communication of business and financial data that is becoming popular around the world. India, too, is working on moving on to XBRL.

While MCA maintains a database of all registered companies, Sebi deals with listed firms and RBI with banks and non-banking finance companies.

“Through e-filing, MCA has obtained a mass database which is available in public domain. So far its use is restricted to getting information on companies. But this data can be productively used for examining and analysing the direction in which companies are moving. XBRL, combined with a sophisticated technology, will further support these objectives,” said Ashok Haldea, former secretary, Institute of Chartered Accountants of India.

The second MCA official said tenders for providing software for MCA 21 would be called for sometime this fiscal year. Currently, the software for MCA 21 is provided by Tata Consultancy Services Ltd.


Source: http://www.livemint.com/2009/07/17010731/Corporate-affairs-ministry-gea.html?h=B

Safety net proposed for independent directors

Independent directors may breathe a sigh of relief as the government braces itself to protect them from being held responsible for the

wrong-doing of their company, through a number of proposed changes in the Companies Bill, 2008. The bill, which was introduced in the latter half of 2008 but eventually lapsed, will be re-introduced in the ongoing Parliamentary session.

The ministry of corporate affairs, is willing to introduce further changes to the Bill in respect of the provisions that will guide the performance of independent directors, a move that has been prompted by the large scale resignation of such directors over ambiguity on their role.

The government will set an outline as to what will be an independent directors’ role vis-a-vis his company’s decision-making process. The idea is to safeguard them against any legal action when they are not directly at fault for their company’s wrong-doing.

The Bill, which is set to be sent to the Parliamentary Standing Committee for a review, will look into the need for changes to give greater flexibility to these directors, and will send its proposal to the ministry. The ministry of corporate affairs, will thereafter introduce the changes to the bill before it is made enforceable.

The ministry, which in the Companies Bill 2008, first introduced the concept of independent directors and also made provisions for their mandatory one-third representation on company boards, is mulling changes into the proposed legislation so that such directors can have a defined role to play. Even as independent directors are expected to act in the interest of the company’s ordinary shareholders, the law does not specify the exact nature of their duties.

The ambiguity on the nature of duties of an independent director often leads to situations where they are blamed for all wrong-doings of the company, a government official said, adding that it was necessary to bring clarity to the law so that degree of accountability against those directors can be clearly drawn. The ministry has also invited recommendations from industry bodies such as CII and Ficci, and is considering to incorporate in the new Bill.

CII, for instance, has urged the ministry to clearly define an independent director and bring it in conformity with the definition under clause 49 of the equity listing agreements of stock exchanges.

It has also suggested that the need for appointment of such directors in closely-held public companies and subsidiaries of any public companies should be governed by the materiality and scale of operation of such companies.

Thus, in case of an unlisted public company or a private company, which is subsidiary of a public company, the requirement related to such appointments should only arise if they exceed the prescribed thresholds of size and scale.

Under the proposed changes, these directors can be held responsible only in those circumstances where the company takes a decision wherein they were actively involved. To put in simple words, independent directors may not be asked to serve as an overall watchdog of the company, a notion which the government now sees as overtly ambiguous.

The reason for the change has been a spurt in resignations by independent directors from the board of companies, that followed the Satyam financial scandal wherein such directors on the erstwhile Satyam’s board were blamed for their inaction to safeguard the company’s general interest. The idea is to provide independent directors with a clearly defined way of performance, so that they can not be acted against in case they are directly not at fault.

“We are aware of the fact that it is important to preserve the breed of independent directors by providing them adequate protection. They have an important role to play in good corporate governance,” Minister of Corporate Affairs Salman Khurshid had recently said at a CII seminar, where he met key industry officials.

Source:http://economictimes.indiatimes.com/Economy/Safety-net-proposed-for-directors/articleshow/4770371.cms

Revamp of corporate governance body planned

With a view to promote better corporate governance practices and check frauds, the ministry of corporate affairs has initiated the task of revamping the functioning of the corporate governance body under its aegis, National Foundation for Corporate Governance (NFCG). For this the ministry has appointed Kiran Karnik, former Nasscom president as the new co-vice chairman of the NFCG who has replaced NR Narayana Murthy, chairman and chief Mentor, Infosys.

The ministry is also planning to strengthen its NFCG office by employing more employees to work under its aegis. “For improving the efficiency of operations of the corporate governance body, the ministry is planning to recruit more officers”, said an official.

Corporate affairs minister, Salman Khurshid recently held a meeting with NFCG officials where issues such as the role and responsibilities of auditors and corporate governance were discussed. Apart from this, NFCG is also going to take up the issue of the independent directors and hold a discussion on strengthening their role in the corporate sector. Talking about the need of corporate governance, Salman Khurshid, minister of corporate affairs had earlier said, “The issues related to corporate social responsibility and exclusive growth as an extension of responsible corporate governance is engaging the attention of the ministry, the corporate sector and their stakeholders”. The ministry and industry chamber, Confederation of Indian Industry had set up NFCG in 2004 in partnership with the Institute of Chartered Accountants of India and Institute of Company Secretaries of India in order to improve implementation and enforcement of various laws related to corporate governance. NFCG was set up with a purpose to have better self-regulation in the Indian industry by paying importance to issues related to corporate governance and by providing training and research accordingly.

source:http://www.financialexpress.com/news/revamp-of-corporate-governance-body-planned/487383/#