MCA's early warning system detects 160 corporate frauds

The Government has found financial irregularities in 160 companies--a whopping 30 of them owned by it--thanks to the early warning system that was put in place last year.

After the nearly Rs 10,000-crore Satyam fraud last year, the Ministry of Corporate Affairs (MCA) in September had developed an early warning system (EWS) to detect corporate frauds.The software-based fraud detecting system scans firms based on 10 financial parameters set by the ministry.

"We have asked the Registrar of Companies to inspect the books of about 130 companies based on the preliminary findings of the EWS and some 30 PSUs would be referred to the Comptroller and Auditor General," an official source told media.

The sources said the EWS has detected discrepancies like fund diversions in own subsidiaries as well as other firms, irregularities in filing balancesheets, and asset-liability mismatch.

"There are some blue-chip companies against which the EWS has given out alerts and we are also carrying out inspections, both invasive and non-invasive, of their books as per Sections 209 and 234 of the Companies Act," the official said without divulging the names of the companies in question.

With the early warning system, the corporate affairs ministry sources said, unusual developments are looked into by scrutinising the quarterly results of companies, their public announcements, filings with exchanges, tax returns, and media reports among others.

On the effectiveness of the system to prevent a Satyam- like fraud which went on undetected for years, corporate affairs minister Salman Khurshid had earlier said,"essentially I put it like a medical test...lipid profile test to tell if your lipid profile is going wrong so that we step in immediately."

The objective of the EWS would be to develop a permanent system for scanning everybody, he said.

However, the system will monitor those information "which the public has the right to know, which are in the public domain and which can give indications of performance...after all that's how people judge performance in the marketplace," the minister had said.