225C AJC Bose Road

  Kolkata-700020

 

 

FRAUD PREVENTION POLICY

 

 

1.0. BACKGROUND

The Corporate Fraud Policy is established to facilitate the development of Internal Controls which will help in detection and prevention of Fraud. It is intent of MSTC to promote consistent organizational behavior by providing guidelines and assigning responsibility for the development of controls and code of conduct..  

Over the years MSTC has put in place various policies and procedures, systems to guide MSTC’s employees to work within and outside the organisation.  Most of these have been formalised in the form of policy documents.  These systems have been designed to ensure that officials dealing and undertaking transactions conduct the same in a transparent & uniform manner.  Few examples are Delegation of powers, Human Resource Manuals, Operation System Manuals (DT & Mktg), Conduct, Discipline and Appeal Rules for employees, Service Rules, Risk Management Policy, Internal Audit Manuals, Integrity Pact as a part of tender documents etc.  These interalia include “Whistle Blower Policy”.  This policy envisages the companies to put in place a mechanism for employees to report to the Management about unethical behavior, actual or suspected fraud or violation of MSTC’s Rule and code of conduct.

Further, the ‘Guidelines – 2007’ issued by the Department of Public Enterprises (DPE) on ’Corporate Governance’ also describes that “the company shall lay down procedures to inform Board Members about the risk assessment & minimization procedures. These

procedures shall be periodically reviewed to ensure that executive management controls risks through means of a properly defined framework. Procedure will be laid down for internal risk management”. It also requires that the Board should implement policies and procedures which should include:

(a) Staff responsibilities in relation to fraud prevention and identification

(b) Management’s responsibility of investigation of fraud once the fraud is detected.

(c) Process of reporting on fraud related matters to management

(d) Reporting and recording processes to be followed to record allegations of fraud

(e) Requirements of training on fraud prevention and identification.

 

Further, Further, Vide Audit Para no 2.5 of C   & AG Report No 9 of 2007 it was pointed out that MSTC Ltd do not have a delineated Fraud Prevention Policy. In compliance with the audit recommendation and also  as per the guideline of Ministry (MOS) in this regard this “Fraud Prevention Policy” is framed.

In the light of the foregoing and keeping in view the approach of MSTC to follow principles of Corporate Governance proactively, it is appropriate that a “Fraud prevention policy” is formulated and implemented.

 

Hence this policy has been framed & is being issued herewith for implementation.

 

 

 

1.1 Responsibility:

 

n      It is the responsibility of controlling officers to ensure that in the areas under their control,  all necessary steps have been taken as per FPP for prevention of fraud.

n      All employees are responsible to bring into notice of Controlling officers about any fraud detected as soon as it comes into their notice, in his / her area and else where.

n      All employees have duty towards the organisation in prevention of any act towards perpetration of any fraud and to bring it to the notice of Controlling Officer as soon as it is detected.

 

 

1.2  Compliance:

 

Each employee working in MSTC as well as contractors, service providers and agent engaged by MSTC shall make attempts to adhere to the fraud Prevention policy. The compliance of policies by the individuals shall be the responsibility of the respective Heads of Department. The non-compliance shall be deemed as violation of terms & conditions of employment /engagement and shall be dealt with Company’s disciplinary codes and procedures and terms of engagement.

 

 

 

 

 

 

2.0. POLICY OBJECTIVES:

 

The “Fraud Prevention Policy” has been framed to introduce a system for prevention/ detection /reporting of any fraud that is detected or suspected and fair dealing of matters on the subject.

 

 

 

2.1 The policy is expected to ensure and provide for the following:-

 

i) That ‘Fraud Prevention’ is the responsibility of all -a ‘culture’ is to be created.

ii) That the management is fully aware of its responsibilities for detection & prevention of fraud and also for:

a) Establishing procedures for preventing frauds and/or

b) Detecting fraud when it occurs.

iii) Policy is expected to provide clear guidance to every one dealing with MSTC:

a) Forbidding them from involvement in any fraudulent activity and

b) The action to be taken by them - where any fraudulent activity is suspected.

iv) Guidance as to how to conduct investigations in fraudulent activities.

v) To provide assurances to one and all, that any & all suspected fraudulent activity(s) will not be allowed and will be fully investigated.

 

3.0. SCOPE OF POLICY:

The policy applies to any fraud or suspected fraud, involving any one viz all employees (full time & part time employees or persons appointed on adhoc / temporary/ contract basis, trainees, apprentices), representatives of vendors/ suppliers/ contractors/ consultants/ service providers or any other agency) doing any business with MSTC.

 

 

4.0  DEFINITION OF ‘FRAUD’:

“Fraud” may be defined as “Any willful act, committed intentionally by an individual(s) – by deception, suppression, cheating or any other fraudulent or any other illegal means, thereby, causing wrongful gain(s) to self or any other individual(s) and wrongful loss to MSTC and other(s)”. Many a times such acts are undertaken with a view to deceive/ mislead others leading them to do or prohibiting them from doing a bonafide act or take bonafide decision which is not based on material facts.

 

5.0 ACTIONS CONSTITUTING/ LEADING TO FRAUD:

While fraudulent activity could have a very wide range of coverage, the following are some of the actions which constitute fraud.

 

The list given below is only illustrative and not exhaustive:-

 

i. Forgery or unauthorized alteration of any document or account belonging to the

Company.

ii. Forgery or unauthorized alteration of cheques, bank drafts or any other financial

instruments etc.

iii. Misappropriation of funds, securities, supplies or other assets by fraudulent means etc.

iv. Falsifying records, removing the documents/ papers/notings from files and /or replacing it.

v. Making fraudulent / false notings etc.

vi. Willful suppression of facts/ deception in matters of appointment; placements;

submission of reports; in any recommendations or making such recommendations as a

result of which a wrongful gain(s) is made to one and/or wrongful loss(s) is caused to

MSTC and others.

vii. Utilizing Company funds for personal purposes.

viii. Authorizing (or receiving) any payment for goods/services not supplied (fully or partly),or supply/acceptance of substandard quality, or supply/acceptance of substandard services.

ix. Destruction, disposition, removal of records or any other assets of the Company with anulterior motive to manipulate and misrepresent the facts so as to create

suspicion /suppression/cheating as a result of which objective assessment/decision would not be arrived at.

x. Any other act that falls under the gamut of 'fraudulent activity'.

A list of indicators and types of fraud are attached as per Appendix-I and Appendix-II respectively.

 

 

6.0 REPORTING OF FRAUD: (Whistle Blower Policy):

i. Any one (full time & part time employees or persons appointed on adhoc/ temporary/ contract basis, trainees, apprentices, representatives of vendors/ suppliers/ contractors/consultants/service providers or any other agency doing any business with MSTC) - as soon as he / she comes to know of any fraud or suspected fraud or notice any other fraudulent activity - he/she must report such incident(s) without further loss of time.

 

ii. Such reporting shall be made to the "Nodal Officer".

 

iii. Until further orders. Officer in-charge Vigilance at Unit level will be the Nodal

Officer.

 

iv If however, time constraints are there to report the matter to the Nodal Officer, such

report should be made to the immediate controlling officer, who shall ensure that

input received is immediately communicated to the Nodal Officer.

 

v The reporting of the fraud normally should be in writing. In case the reporter is not

willing to furnish a written statement of fraud but is in a position to give sequential and specific transaction of fraud/suspected fraud, then the officer receiving the information should record such details in writing as narrated by the reporter and also maintain the details about the identity of the official / employee / other person reporting such incident.

 

vi Reports can be made 'in confidence'. The person to whom the fraud or suspected fraud has been reported must maintain the confidentiality with respect to the reporter. Such matter should under no circumstances be discussed with any other person who is not supposed to know about/ or is not an authorized person in such matters.

 

vii. Anonymous complaints received, if not supported by the relevant evidence, may not be acted upon. However, a record of such complaints will be maintained. Also, a record of the reasons to be made in writing (for not taking any action on such anonymous complaints) will be maintained by the Nodal Officer.

 

viii. In the case the management finds the complaint to be motivated or vexatious, it shall be at liberty to take appropriate steps against complainant.

 

ix. All reports of fraud or suspected fraud shall be handled with utmost speed and shall be coordinated by the Nodal Officer.

 

x.  Nodal Officer on receiving input about any suspected fraud shall ensure that all relevant records/ documents and other evidence is being immediately taken into custody and being protected from being tampered with, destroyed or removed by suspected perpetrators of fraud or by any other official under his influence.

Action of Vigilance Dept against such fraud cases would be as per their departmental procedure / as per the guideline of CVC. Important feature of CVC guideline regarding whistle-blower policy is attached as per Annexure-III.

 

xi. Role of CVC are given in Annexure-IV.

 

 

6.1 UNDERSTANDING FRAUD VIS-À-VIS CORRUPTION

Fraud involves deliberate misrepresentation of fact and/or significant information to obtain undue or illegal financial advantage.

Corruption involves effort to influence and/or the abuse of public authority through the giving or the acceptance of inducement or illegal reward for undue personal or private advantage.

 

 

6.2 IDENTIFICATION OF HIGH RISK AREAS

Management may put special emphasis on “High Risk Prone” areas in terms of setting up close monitoring and control system and fixing up “Zero Tolerance” stricture on some procedure or operation. Some of the commonly perceived high risk areas are:

 

1)      Evaluation of new proposal for sale (Mktg), Setting up exposure limit for a customer. Fixing up quantum Security by way of SD or other form.

2)      Negotiation of LC documents.

3)      Processing of auction / tender procedure, from receipt of material list to issuance of DO.

4)      Procurement of Capital Items.

5)      Cash Management.

6)      General Expenditure.

7)      Staff Recruitment

 

 

 

 

7.0 INVESTIGATION PROCEDURE:

The investigation procedure shall be in following stages

 

n      Appointment of Nodal Officer

 

n      Departmental Investigation

 

n      Handing over the case to vigilance dept. as and when required

 

i. The Nodal Officer will act as Co-ordinator.

ii. He shall refer the details of the Fraud/suspected fraud received, to the Vigilance Department of MSTC, for further appropriate investigation and needful action.

iii. This input would be in addition to the intelligence, information & investigation of cases of fraud being investigated by the Vigilance Deptt. on their own as part of their day to day functioning.

iv. After completion of the investigation, due & appropriate action, which may include administrative action, disciplinary action, civil or criminal action or closure of the matter if it is proved that fraud is not committed etc. - depending upon the outcome of the investigation  shall be undertaken as per relevant rules of the MSTC.

v. Vigilance Department shall apprise "Nodal Officer" of the results of the investigation undertaken by them. There shall be constant coordination maintained between the two.

vi. Keeping in view the Guidelines on ‘Corporate Governance’ issued by the Department of Public Enterprises, wherever 'fraud' of a material nature is established prima-facie, report thereof will be submitted by the Nodal Officer to the Audit Committee for their review and further reporting the matter to the Board.

 

 

 

8.0, RESPONSIBILITY FOR FRAUD PREVENTION & TRAINING RELATED THERETO:

It is an essential function of management to establish controls and safeguard assets of the Company. It is also a primary responsibility of management to meticulously record all material transactions and fairly report the results of the operations of the Company. The primary responsibility for establishing an environment that prevents valuable entity assets from being lost through fraud and corruption therefore clearly rests with the management. Further, since good management practice require establishment of adequate controls and checks, the responsibility to detect fraud and corruption is a natural corollary of the responsibility to establish an environment that prevents and deters fraud and corruption. This responsibility includes the taking of remedial steps, including such disciplinary /punitive / legal action as the circumstances may warrant and also includes the obligation to bring about changes to policies and procedures for ensuring that similar cases will not happen again.

i. Any one (full time & part time employees or persons appointed on adhoc/ temporary/ contract basis, trainees, apprentices, representatives of vendors/ suppliers/ contractors/ consultants/ service providers or any other agency(ies) doing any business with MSTC), is expected and shall be responsible to ensure that there is no fraudulent act being committed in their areas of responsibility/control. As soon as it is learnt that a fraud or suspected fraud has taken place or is likely to take place, they should immediately apprise the same to the concerned authority as per this policy.

 

ii. All controlling officers shall share the responsibility of prevention and detection of fraud and for implementing the Fraud Prevention Policy of the Company.

 

iii. It is the responsibility of all controlling officers in consultation with the Nodal Officer to ensure that there are mechanisms in place within their area of control to :-

a. Inform every one working with/ under him about ‘Fraud Prevention Policy’,

b. Familiarize each employee with the types of improprieties that might occur in their area,

c. Inform them the mechanism about Fraud Prevention and Detection,

d. Create a culture whereby employees are encouraged to report any fraud or suspected fraud which comes to their knowledge, without any fear of victimization.

e. Promote employee awareness of ethical principles subscribed by the Company through 'Conduct, Discipline & Appeal Rules';

iv. A disclosure about the 'Fraud Prevention Policy' will be made a part of ‘tender Document’, so as to make every one aware of and not to indulge or allow anybody else working in their organization to indulge in fraudulent activities while dealing with MSTC.

 

 

A list of good management practice is attached as per Appendix-V.

 

 

 

8.1 Therefore, following clause may be made apart of the tender conditions:

Fraud Prevention Policy of MSTC:

 

1. Everyone may take a note that a "Fraud Prevention Policy" is being followed at MSTC, which provides a system for prevention/ detection/ reporting of any fraud. It also forbids every one from involvement in any fraudulent activity and that where any fraudulent activity is suspected by any one, the matter must be reported to the NODAL OFFICER, as soon as he /she comes to know of any fraud or suspected fraud or notice any other fraudulent activity.

2. Anonymous complaints received, if not supported by the relevant evidence, may not be acted upon.

3. All reports of fraud or suspected fraud shall be handled and shall be coordinated by the Nodal Officer.

4. A copy of the 'Fraud Prevention Policy' is available on the official web-site of MSTC.

 

 

 

 

9.0 IMPLEMENTATION & ADMINISTRATION OF THE POLICY:

 

Each Controlling Officers will be responsible for implementation & administration of the Fraud Prevention Policy in the area under their control.

 

 

10.0 NEXT HIGHER AUTHORITY:

 

The Chief Vigilance Officer shall be the next higher authority for follow-up of the implementation of the policy.

 

 

 

11.0 AUTHORITY FOR INTERPRETATION, ADMINISTRATION AND REVIEW OF THE POLICY:

The Chairman & Managing Director shall be the authority for interpretation, administration and application and review and revision of this policy.

 

 

 

 

 

 

 

Appendix I

Indicators of Fraud

Missing expenditure vouchers and unavailable official records

Crisis management coupled with a pressured business climate

Profitability declining

Excessive variations to budgets or contracts

Refusals to produce files, minutes or other records

Related party transactions

Increased employee absences

Borrowing from fellow employees

An easily led personality

Covering up inefficiencies

Lack of Board oversight

No supervision

Staff turnover is excessive

Figures, trends or results which do not accord with expectations

Bank reconciliations are not maintained or can’t be balanced

Excessive movement of cash funds

Multiple cash collection points

Remote locations of any event.

Unauthorised changes to systems or work practices

Employees with outside business interests or other jobs

Large outstanding bad or doubtful debts

Offices with excessively flamboyant characteristics

Employees suffering financial hardships

Placing undated/post-dated personal cheques in petty cash

Employees apparently living beyond their means

Heavy gambling debts

Signs of drinking or drug abuse problems

Conflicts of interest

Lowest tenders or quotes passed over with scant explanations recorded

Employees with an apparently excessive work situation for their position

Managers bypassing subordinates

Subordinates bypassing managers

Excessive generosity

Large sums of unclaimed money

Large sums held in petty cash

Lack of clear financial delegations

Secretiveness

Apparent personal problems

Marked character changes

Poor morale of employees

Excessive control of all records by one officer

Poor security checking processes over staff being hired

Unusual working hours on a regular basis

Refusal to comply with normal rules and practices

Personal creditors appearing at the workplace

Non taking of leave

Excessive overtime

Large backlogs in high risk areas

Lost assets

Unwarranted organisation structure

Absence of controls and audit trails.

Socialising with clients – meals, drinks, holidays

Seeking work for clients

Favourable treatment of clients – eg allocation of work

Altering contract specifications

Contract not completed to specification

Contractor paid for work not done.

Grants not used for specified purpose – eg Leasing capital equipment

instead of purchasing them

Appendix II

 

Common Methods and Types of Fraud

Payment for work not performed

Forged endorsements

Altering amounts and details on documents

Collusive bidding

Overcharging

Writing off recoverable assets or debts

Unauthorised transactions

Selling information

Altering stock records

Altering sales records

Cheques made out to false persons

False persons on payroll

Theft of official purchasing authorities such as order books

Unrecorded transactions

Transactions (expenditure/receipts/deposits) recorded for incorrect sums

Cash stolen

Supplies not recorded at all

False official identification used

Damaging/destroying documentation

Using copies of records and receipts

Using imaging and desktop publishing technology to produce apparent original invoices

Charging incorrect amounts with amounts stolen

Transferring amounts between accounts frequently

Delayed terminations from payroll

Bribes

Over claiming expenses

Skimming odd pence and rounding

Running a private business with official assets

Using facsimile signatures

False compensation and insurance claims

Stealing of discounts

Selling waste and scrap.

 

 

 

 

Appendix V

Examples of Good Management Practices Which May Assist in Combating Fraud

All income is promptly entered in the accounting records with the immediate

endorsement of all cheques

Regulations governing contracts and the supply of goods and services are properly enforced

Accounting records provide a reliable basis for the preparation of financial statements

Controls operate which ensure that errors and irregularities become apparent during the processing of accounting information

A strong internal audit presence

Management encourages sound working practices

All assets are properly recorded and provision is made known or expected losses

Accounting instructions and financial regulations are available to all staff and are kept up to date

Effective segregation of duties exists, particularly in financial accounting and

Cash /securities handling areas

Close relatives do not work together, particularly in financial, accounting and

Cash /securities handling areas

Creation of an agency climate to promote ethical behaviour

Act immediately on internal/external auditor’s report to rectify control weaknesses

Review, where possible, the financial risks of employees

Issue accounts payable promptly and follow-up any non-payments

Set standards of conduct for suppliers and contractors

Maintain effective security of physical assets; accountable documents (such as cheque books, order books); information, payment and purchasing systems

Review large and unusual payments

Perpetrators should be suspended from duties pending investigation

Proven perpetrators should be dismissed without a reference and prosecuted

Query mutilation of cheque stubs or cancelled cheques

Store cheque studs in numerical order

Undertake test checks and institute confirmation procedures

Develop well defined procedures for reporting fraud, investigating fraud and dealing with perpetrators

Maintain good physical security of all premises

Randomly change security locks and rotate shifts at times (if feasible and economical)

Conduct regular staff appraisals

Review work practices open to collusion or manipulation

Develop and routinely review and reset data processing controls

Regularly review accounting and administrative controls

Set achievable targets and budgets, and stringently review results

Ensure recording of regular leave are done.

Rotate staff

Ensure all expenditure is authorised

Conduct periodic analytical reviews to highlight variations to norms

Take swift and decisive action on all fraud situations

Ensure staffs are fully aware of their rights and obligations in all matters concerned with fraud