SUBMITTED TO
Tahmina Ahmed
Lecturer
Accounting & Information Systems
University of Dhaka
SUBMITTED BY
Group 18
Date of submission:10.11.14
Group members:
Name
ID
18022
2.Rubina Akther
18048
3.Mohammad Saadman
18052
4.Rumi Akther
18066
5.Hilary Talukder
18099
November 5, 2014
Tahmina Ahmed
Lecturer
Dept. of Accounting & Information Systems
University of Dhaka
Subject: Submission of report on Corporate fraud & the role of the auditor: Bangladesh
Perspective
Dear Madam,
We are honored and pleased to inform you that as per the requirements, we worked on
the issue of the preparation of a report based on the corporate frauds & the role of the
auditor in Bangladesh perspective. To fulfill the report objective, we analyzed &
reviewed some of the secondary information available on the internet related to the topic..
Based on our classroom knowledge on the related issues, we tried to make the report as
specific and unique as possible. We humbly submit this report for your review and
feedback. Preparation of this report demanded a minimum level of working knowledge of
the process of audit & assurance . We also tried to follow your instructions properly now
and when necessary.
Table of contents
Chapter one: Introduction to the report
1.1:Executive Summary
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1.2: Introduction
1.3: Objective
1.4: Scope
1.5: Methodology
1.6: Limitation
Chapter two: Literature Review
2.1: Corporate Fraud definition
2.2: Types of corporate fraud
2.3: Role of the auditors in frauds
2.4: Auditors perspective regarding fraud involvement &consequences
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1.2 : Introduction
Fraud has become very complicated in this era of technology, and increasingly difficult to
detect, especially when it is collusive in nature and committed by top management who are
capable of concealing it. In this respect, auditors have argued that the detection of fraud should
not be their responsibility (Alleyne and Howard, 2005). Consequently, the term fraud in prior
auditing standards referred to irregularity which incorporated fraudulent financial reporting as
well as employee theft and embezzlement, we limit our focus to management fraud or fraudulent
financial reporting, which relates primarily to managements intentional misrepresentation in
financial statements (Guan, et al., 2008). Generally, frauds relating to financial reporting involve
deliberate distortion of accounting records, falsification of transactions, or misapplication of
accounting principles. Regardless of how the fraud is manifested, it is typically difficult for
auditors to discover since the perpetrators take steps to deliberately conceal the resulting
irregularities. Given the difficulty that auditors face in detecting financial statement fraud,
coupled with their increasing responsibility to detect it, there is a definite need to develop audit
procedures or strategies more specifically focused on fraud detection (Knapp and Knapp, 2001;
Guan, et al., 2008).
Over the last two decades, there have been developments concerning fraud which some have
seen as marking significant extension to audit responsibilities. The accounting profession has
been jeopardized by some unprecedented crises caused by high-profile business and audit
failures like WorldCom, Enron, Cendant, Sunbeam and Waste Management. In Enron debacle
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the criticism of Arther Anderson unearthed the fact that Auditor (Anderson) was a dominant
clientin the Auditees (Enron) Houston office (Taylor and Todd et al. 2003). The above
mentioned issues and concerns squarely lead to the question of upholding auditors independence
and reliability to serve public interest best. In this commentary we would like to unearth the
mechanism so as to formulate a roadmap to repositioning the role of auditors and accountants in
an ever changing corporate world.
In Bangladesh, a number of corporate fraud cases have also arisen. Cases like Hall-Mark,
Destiny 2000,Unipay to U Bangladesh etc have clearly shown the weak position of the audit
profession in the country. However, modern world is constantly undergoing changes to improve
the audit profession & empower the auditors in fraud detection. It is fact that
recently corporate world is taking more measures to combat fraud and launching new antifraud
initiatives and programs by appointing forensic accountant in response to the Sarbanes Oxley
Act of 2002 than to prior years specially because of the occurrence of strong shocking corporate
scandals. Hopefully, the current measures would be sufficient to lessen auditors involvement in
frauds & better the fraud detection process.
1.3 : Objective
The main thrust of this study has concentrated on the issues relevant to the corporate frauds in
Bangladesh and the role of the auditors in them.
So, the specific objectives of this study are as follows:
To evaluate the cases of corporate frauds in Bangladesh.
To find out the roles played by the auditors in those frauds
1.4: Scope
The report is structured to give a best view of the series of events possible. Starting with Chapter
1, the theoretical foundations (i.e; objectives, limitations, methodology). In Chapter 2, the paper
continues to present the secondary data analysis collected from the internet. Chapter 3 dictates
the findings of the study with possible explanations. chapter 4 contains certain recommendations
& finally chapter 5 concludes the report.
1.5: Methodology
In order to achieve the objectives of the study mainly secondary data have been used. The data
was mainly collected from the internet. Different research papers, articles have been used in the
preparation of the paper.
1.6:Limitations
The most significant hurdle faced during the preparation of this report was the unavailability of
data. Access to a clear and sophisticated data set in Bangladesh was very hard as only a few
researches have been done regarding the topic.
The term fraud in prior auditing standards referred to irregularity which incorporated
fraudulent financial reporting as well as employee theft and misappropriation of assets, we limit
our focus to management fraud or fraudulent financial reporting, which relates primarily to
managements intentional misrepresentation in financial statements [Guan, et al.( 2008) ].
The term fraud is commonly used to describe a wide variety of dishonest behaviors such as
deception, bribery, corruption, forgery, false representation, collusion and concealment of
material facts. It is usually used to describe the act of depriving a person of something by deceit,
which may involve the misuse of funds or other resources, or the supply of false information.
Actual gain, benefit or loss to another does not have to occur for an act to be fraudulent but there
does have to be intent to make a gain or cause a loss. [Her majestys treasury, UK.(2012)]
Fraud has been defined in the Act to require that the fraudster was dishonest in his/her behavior
and that he/she intended to make a gain or cause a loss to another in one of the following ways:
a) False representation
b) Failing to disclose information
c) Abuse of position [UK Fraud act 2006]
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Pressure
Fraud
Opportunity
Rationalization
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Destiny Group before the eyes of the banking authorities several months into the first sighting of
the alleged fraudulent and illegal deposit taking from the members of the public.
Apart from these cases, one of the major sectors of corporate fraud in BD is share transfer
Properties worth millions can be transferred by forging two or three signatures & RJSC(Registrar
of Joint Stock Company doesnt check the documents properly.
.Here is a table showing fraud cases in Bangladesh & their victims(It was collected On sample
basis)Company name
Victims
Existing
Workers
Total
Destiny 2000
Ltd
25
30
Speak Asia
Unipay to U
Bangladesh
E links
17
19
Dolancer
Lifeway Private
Ltd
Rich Business
system Ltd
10
Total
22
90
68
Universal
people
Total
respondent
10
100
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3.2: Reasons behind corporate failures & auditors roleAt first, we analyze the infamous Hallmark scandal by the Destiny 2000 Ltd. A scam of this
magnitude could be possible because of the following reasons:
1. Weakness in the management of the bank
2. Weakness in internal oversight and control and
3. Most of all, due to collusion of some insiders in the bank and outsiders .
The situation also reflects the lack of governance and overall control of the Banks Board of
Directors, because they should have exercised their supervision and control over such a huge
amount of loan. Usually, banks conduct audit of a branch once a year, sometimes twice. So here
it is important to look into how the Board of Directors as well as the management led by the
managing director supervised the process of providing such a huge amount to a single company.
Generally, the monitoring and control by the bank's Board of Directors and its Audit Committee
and the Asset Liability Management Committee (ALCO) are imperative in such a big
transaction. If proper audit had been conducted in this case why did the management (managing
director and the staff below that) and the Board of Directors not examine the audit report? And if
they did, then why had they not expressed their opinion or take action against the perpetrators? If
audit reports were not placed before the Board, why the Board did not take action at the right
time? This is an instance of an amazing combination of abject lack of supervision, control,
unwillingness to take action, failure of policy direction, greed, forgery and corruption.
According to the audit report, as of May 31 2012, the bank had disbursed Tk 3,699 crore as loan,
of which Tk 3,606 crore was disbursed without maintaining banking rules.The report said the
branch manager did not follow the banking rules while sanctioning and disbursing the loans. He
had also taken advantage of the loose supervision by the principal and general managers offices
and the head office. He had adopted unauthorised ways to disburse the huge amount of money as
his clients wished.
On the other hand, the report said, the branch officials intentionally refrained from maintaining
relevant documents properly. The top management, including the managing director and general
managers office, also did not monitor and evaluate the growth in loan disbursement by the
Ruposhi Bangla Hotel branch, the functional audit report said. The functional audit report said
the top management of the bank had remained mysteriously silent for a year, since February
2011, although the signs of irregularities in the branch came to light through various internal
inspections.
In 2009 and 2010, an internal inspection team detected gross irregularities in international trade
of the branch and submitted a report in February 2011, but the International Foreign Trade
Division of the bank did not take any steps in this regard. Besides, the foreign trade division also
did not monitor the abnormal loan disbursement growth, 1,938 percent in some categories, the
report added.
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The committee interviewed all members of both the DSE and CSE, and consulted journalists and
analysts before presenting their report. The committee found various irregularities, including the
existence of omnibus accounts, that allowed some market players to make exorbitant profits at
the expense of the retail investors. Among the 60 identified primarily included chairman of
Beximco and the mastermind of the 1996 market crash Salman F Rahman, former DSE president
Rakibur Rahman, SEC chairman Ziaul Khandaker, SEC member Mansur Alam and BNP
politician Mosaddek Ali Falu. The report mentioned that pro-government business tycoons,
including Salman and Rakibur, exerted influence within the SEC by influencing the appointment
of its members. The report ended with recommendations to reform the SEC drastically and asked
the government to publish the names of the influential players and to remain cognizant in
countering their influences
This situation also shows the helpless condition of the auditors in the country. The auditors of the
companies couldve reported the suspicious trasnsfer of shares of the company, but they didnt. It
also shows that SEC(Securities Exchange Commmision) do not monitor the auditing process
iii) There is inadequacy in most of the audit methodologies. Most audits represent a snapshot of a
given point in time - in other words, they don't show the situation before or after an audit
iv) There is a limited supply of experienced auditors with the necessary range of skills required.
So sometimes companies hire incompetent auditors & thus the audit quality is compromised.
v) The SEC & RJSC do not go through the audit reports properly & thus miss a number of
significant points.
vi) Even external auditors who are expected to be independent are helpless in the hands of the
top management. Even though the regular audit team (external) of Destiny 2000 Ltd reported
suspicious activities from year to year, they couldnt stop managements illegal activities.
vii) Properties worth millions can be transferred by forging two or three signatures & RJSC
(Registrar of Joint Stock Company doesnt check the documents proper
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