XYZ & ASSOCIATES

CHARTERED ACCOUNTANTS
NO.32, GREENWAYS ROAD, BANGALORE, 536002.

Email: [email protected]
Mobile: 9000100089
DATE: 07/07/2019
PRIVATE & CONFIDENTAL
TO,
THE MANAGER
SOUTH ZONE,
ZEAL BANK LTD,
BANGALORE - 536002

Re: Forensic Investigation of ABC CONSULTANCY PRIVATE LIMITED

Dear Sirs,

Attached is our report of the results of our forensic investigation of the ABC consultancy
private limited, We have conducted our investigation pursuant to our engagement letter dated
15/06/2019 between Zeal Bank Southern Zone head office and our firm.

Our procedures were performed with due diligence. Our analyses and observations are based
upon information provided to us as of the date of this report. It is possible that additional
information may become available following the date of our report and, if so, our analysis
and observations could be affected by such information.

We are happy to discuss any questions at your convenience.

For XYZ Associates

Chartered Accountants

CA. XNR
Membership No. X12300
BACKGROUND

ABC consultancy private limited company is renowned real estate consultancy group from
Bangalore, Karnataka. The company was approached by Mr. K, a representative from the
zeal bank Koramangala branch and requested to make bulk Fixed deposits in their bank
branch for which the bank shall provide any facilities, if required in the future at low interest
rates compared to other banks.
As the company were in the process of expanding their services throughout Karnataka, were
willing to avail term loans and working capital facilities from the bank, hence they decided to
avail the offer made by Mr. K.
Then, Mr.K had approached the bank representing as the financial advisor of M/s. ABC
consultancy Private Limited and wanted to create bulk Fixed deposits in the name of the
company, the Bank branch manager accepted the requests of Mr.K and created the Fixed
deposits in the bank branch.
As the loans became overdue for a very long period and inspite of frequent reminders to the
company to renew the working capital facilities, the board decide to appoint a forensic
auditor.

OBJECTIVE:

The objective of the forensic audit was

1. To audit and investigate the overdrawing and non-renewal of the facilities availed.
2. To check whether the borrower was genuine.
3. To suggest implementation of internal control required.

MODUS OPERANDI:
I. The Audit team started their process by reviewing the KYC form submitted by the
company and the following flaws have been identified:

 Term deposits accounts were opened at the branch after obtaining KYC
documents from the concerned organization. The KYC documents were
received through the private person. Fixed deposit receipts (FDR) were
delivered by the bank on the basis of the Corporate authority letters.

 Later on the private person had submitted an application for loan, purportedly
made by the Corporate holding deposits with branch for loan / overdraft
against FDR.
  The loan applications accompanied with original FDR receipt, duly discharged
by the signatories who had signed the documents earlier was submitted to the
branch.

 The sanctioning authority, after completing the necessary formalities,

sanctioned the loan/overdraft.

II. On detailed interrogations with the management of the company the following
findings are arrived:

 The private persons represented themselves to the Organizations/Corporates as

representatives of bank and to the bank as financial advisors of the
Organization/Corporates

 The fraudsters acted as representatives of the organizations, created a forged

fixed deposit receipt and handed over the same to the beneficiaries.

 Subsequently, the original deposit receipts were utilized by the fraudsters for
availing loan against the deposit without the knowledge of the organization.

 While disbursing the loan amount, letters of request for RTGS transfer to
parties or cheques duly signed by the authorized signatories were received
from the Organizations/Corporates.

WEAKNESS IN THE INTERNAL CONTROL:

I. Mr.K , a private person represented themselves to the Company as representative of

the bank and to the bank as financial advisors of the Company. The organisation
should have verified their Identities before they agreed to the scheme offered.

II. While collecting the KYC documents from the Company, presumably retained the
original documents with them and generated fake documents of KYC, signatures,
stamps, letter heads etc, purported to have been prepared by concerned Company and
handed over to the banks.

III. After collecting the original FDR receipts from the banks, private persons presumably
retained them and handed over photocopies to the concerned Company.
IV. To avail a loan against original FDR retained by them, they presumably created
fabricated documents on the basis of the documents submitted to the banks earlier.
Original FDR duly discharged by the authorized signatories accompanied the loan
applications.

V. The branch managers without assessing the genuineness of these apparently looking
genuine documents acted on the mandate and recommended/sanctioned loan against
FDRs and also remitted the money to various accounts in several banks as per the
mandate.

VI. RTGS for opening FDR accounts were sent by the Company to the banks but they
declined having ever applied for loan/ overdraft availed. It also transpired that the
private persons presented themselves as representatives of bank and collected various
papers/documents from Company.

VII. It is also suspected that current accounts were also opened at the branches in the name
of Company where funds by way of RTGS were received and disbursed by RTGS
transfer to various other banks.

CONCLUSIONS& RECOMMENDATIONS:

I. Proper due diligence and precautions should be taken by the branches while dealing
with the bulk deposit accounts opened in the names of organizations, corporates and
public sector undertaking etc.

II. The bank’s systems and procedures should not be diluted. Further independent
investigation is called for on the conduct of Bank Manager, Loan officer.

III. Detailed investigation about the account where the amount has been transferred must
be inquired.

IV. Detailed Investigation of Mr. K must be made with the help of CCTV footages, logs
with company and the bank.

V. Branches, on receipt of bulk term deposits of Rs.1.00 crore and above should report
the complete details of such deposits to Treasury Management Department.
 VI. In the said report branch should also confirm that KYC guidelines have been
complied with.

VII. The loan sanction officer should critically go into on the quality of business booked
by branches and sudden spurt, if any, observed in business growth should be
thoroughly investigated.

VIII. Branch manager should enquire about customers’ requirement and brief them about
the details of Loan/overdraft schemes such as rate of interest, maximum eligible
amount of loan, requirement of signatures, KYC documents etc.

IX. For limited companies, trusts, associations, co-operative, it should be ascertained

whether the company /director/trustees/office bearers having borrowing powers and
the extent of these powers. The copy of the necessary resolution passed by the
borrowing organization for borrowing against the fixed deposit receipts should be
obtained.

X. Bank should not depend on private person for accepting the bulk deposits. Officers to
verify details of Organization/Corporate and verify the signature of all the joint
holders as per bank record.

XI. Bank officer should obtain requisite documents executed in person from the applicant
and enter the proposal in loan sanction register along with original FDR.

XII. This act of forgery and misrepresentation being a criminal offence, necessary
escalation of the situation is required.

XIII. Police complaint is required to be made by the branch bank against the person
involved.

For XYZ Associates

Chartered Accountants

CA. XNR
Membership No. X12300