RUAS MBA503 FT17

Faculty of Management &Commerce

Ramaiah University of Applied Sciences
Department Management Studies
Programme MBA
Batch Full -Time 2019 Course Start 9/10/2019
Date
Course Code 19MBA504A
Course Title Managerial Accounting Laboratory Y N X
Course Leader Usha J.C./ Reshma K.J.

Module Assessment
Name of the
Reg.No. 16MCMSO47098 SOUJANYA HURKADLI
Student
Sections

Examin
Marking Scheme

Marks

Marks
First
Max

er
Exhibit a detailed plan of investigation of company
1.1 accounts as per forensic audit plan 6

Prepare a detailed report on the fraudulent

1.2 7
transactions with justification
Present findings of the case and suggestions for
Part-A

1.3 6
avoiding such fraudulent transactions in the future
References and Citation 01
Part-A
20
Max Marks

Total Assignment Marks 20

Signature
of the Examiner

Assignment
Instructions to students:
1. The assignment has to be neatly word processed as per the prescribed format.
2. Submission Date: 6th January 2020
3. Submission after the due date is not permitted.

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4. Method of evaluation as per the submission and marking scheme

5. IMPORTANT: It is essential that all the sources used in preparation of the
assignment must be suitably referenced in the text.

Part –A (6+6+7+1 = 20 Marks)

Punjab National Bank appointed BDO to conduct a forensic audit of jeweller Nirav Modi’s
companies, according to people directly briefed on the matter. The bank issued a formal
appointment letter to the Belgium headquartered audit firm on February 27 that was
signed by PNB executive JK Gupta. Modi, his uncle Mehul Choksi and their companies
have been accused of defrauding the bank of as much as Rs 12,700 crore. BDO been
tasked with carrying out an audit of five Nirav Modi group entities--Firestar Diamond,
Firestar International, Solar Export, Stellar Diamonds and Diamond R US. The books of all
these entities will undergo forensic scrutiny for a period of seven financial years
beginning FY11. On the light of the above preamble Consider yourself as a member of
audit committee and answer perform the following:

1.1 Exhibit a detailed plan of investigation of company accounts as per forensic audit
plan
1.2 Prepare a detailed report on the fraudulent transactions with justification
1.3 Present findings of the case and suggestions for avoiding such fraudulent
transactions in the Future
1.4 References

Guidelines for Submission

Citation of the references in the text is necessary in the assignment.



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1.1 Exhibit a detailed plan of investigation of company accounts as per forensic

audit plan
The corporate scam of National Punjab bank has alleged a fraudulent transaction
around 11400crore has been in light the fraud has happened through credit
exchanges on jan25 the National Punjab bank went to CBI had reported
transaction worth 218crors .FIR fingers 3 specific import jewellery companies are
link to Nirav Modi and Mehul Choksi, chairman of Geethanjali jewellery the
fraudulent transaction is based on letters of credit certain employees of National
Punjab bank gave a letter of credit ie letter of understanding (LOU) to overseas
branch of indian bank those are Allahabad bank and Axix bank once they gave
credit to National Punjab bank to pay MR Nirav Modi suppler later National
Punjab bank realsied that their was no official record of underting or letter of
credit National Punjab bank ((PNB) filed a complaint with the CBI, wherein it
was alleged that Nirav, Ami Modi, Nishal Modi and Mehul Choksi, all partners of
M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamonds, in collusion
with two bank officials committed the offence of cheating against PNB and
caused a wrongful loss. the main issued was highlighted was that was National
Punjab bank was not aware of scam they issued saying that they never received
the letter of understanding later they understood the scam they handed the case to
CBI when CBI investigated into it and ratified that their were 2 people officials
were involved they were Gokulnanth shetty and manoj kharat and the other people
participated were mehul choksi(uncle) and ami modi (wife) and (brother) neeshal
modi their were complain being filed against them Hari prasad (whristblower /
jeweller)wrote a letter saying that their is a scam going around in National Punjab
bank about the loans going around it convincing to PM office saying that to take
action on it but there was negative response from them. PM office acknowledged
saying that it won't take any action regarding this scam and they closed the case
there is saying that there is link between Narendra modi and Nirav Modi . There
was raid on Nirav Modi all his assets were seased stock of rs5100cr including
gold and diamond jewellary was found .At the time of proving loan There were no
security issued by Nirav Modi National Punjab bank indicated in FIR that the
money raised to import bills were not used to pay to the suppliers. These
transaction were not recorded during high amount off transactions were made
through SWIFT where money is transferred through bank to banks

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2. Prepare a detailed report on the fraudulent transactions with justification

on 18 may 2018 the Nirav Modi scam was reviled. Nirav Modi the billionaire
jeweller who scammed Punjab National Bank with 11400crores . Punjab National
Bank alleges associates of 3 firms Diamond R US, M/s Solar Exports and M/s
Stellar Diamonds ,apporoached to PNB ON 16 JAN 20018 requesting for LoUs to
make payment to its overseas suppliers were as bank demanded for at least 100%
cash margin for issuing loans but the firms claimed that they received loans
without any such guarantee in the past Punjab National Bank raised a case
against Nirav Modi Neeshal and Mehul Choksi durin those time usha
ananthasubramanian was was MDand CEO of allahabad bank she was granted
bail for surety bond of rs1 lakhs. Ananthasubramanian was MD of Punjab Natinal
Bank. On Feb13 CBI registered a case against Nirav Modi on january 29 the bank
has reported saying that scam of rs280crores but later it was realised that it was of
rs11,400crores this was one of the biggest scam in India's bank history as Nirav
Modi is an importer of diamonds later Nirav Modi approached Punjab National
Bank for buyers credit i.e. loan taken from overseas bank and guaranteed by
Punjab National Bank in order to do this. Punjab National Bank had to issue
"letter of undertaking" to overseas bank .The loan was given to Punjab National
Bank but not directly to Nirav Modi were Punjab National Bank created an
account called 'noatro ' account to which overseas bank lend the loan as part of its
due diligence Punjab National Bank didn't verify Nirav Modi credit worthiness
and modi was not asked to provide collateral equal to or greater than loan amount
requested but whereas Punjab National Bank did neither these things where
unnoticed the reason behind these scam was because of 'rogue employees ' these
people helped Nirav Modi with LOU scam they were helping him out with the
"letter of undertaking" this was completely negligent by top management at
Punjab National Bank would not be aware of the huge loans are being guaranteed
in the name of banks without any collateral. Punjab National Bank was not
exactly into the scam but due to some of the officials of bank this was encouraged
the people responsible for the scam were Punjab National Bank auditors for

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negligence and overseas bank such as Allahabad bank, union bank of india, Axis
bank for overlooking the nostro account and also RBI for gross negligence and not
enforcing stricter lending norms an also The finance minister because
government is the biggest shareholder in public sector banks and Punjab National
Bank is second biggest public sector banks now as the Punjab National Bank is
liable to pay to overseas bank. Punjab National Bank later paid through some of it
from Nirav Modi assets the rest was repaid from its own money over 10 Punjab
National Bank employees have been suspended so far and 4 of them have been
arrested theses were notified in scams

3. Present findings of the case and suggestions for avoiding such fraudulent
transactions in the Future?
 Verify The Credit Worthiness- it is really important for a bank to check
the credit worthiness of the person or a firm to whom the money is being
lent so that the liability chances of repaying back the amount of loan must
be assured bank has to follow certain protocol while evaluating the
application bank need to look after the capacity of firm to repay amount the
amount of capital possessed by firm the condition off the firm every bank
has its own criteria as to how they arrive at tier lending decisions . In recent
case of Nirv Modi which was India's biggest scam in banking history .As
part of its due diligence Punjab Natiional Bank should have asked Nirav
Modi's credit worthiness and should have verified with it this lead to bank
a huge loss where ban was liable to pay to overseas banks through its
pocket PNB didn't suspected until and unless when bank didn't found any
records of granting to firms the negligence of bank officials lead to scam .it
is to be considered that before providing the loans to firms or individual it is
to be kept in point that to verify the credit worthiness of it so that to get the
confirmation of repayable loan
 Built Strong Core Banking Solution Software -Observe SWIFT
transaction - this stands for Society For Worldwide Interbank Financial
Telecommunication(SWIFT)its an electronic fund transfer vast messaging
network for banks it is known for accurate , quickly transfer of money with
security and receive information such as money transfer SWIFT provides
unique code to each financial institution with consist of eight characters or
11 characters were ISO code is used to protect banking transactions
worldwide it is just messaging system doesn't hold any kind of funds nor
securities it is important to built a core banking solution software in case of
Nirav Modi scam the core banking solution software was not done neither
soughed. Audit reports did not find it important potential risk zone there

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was unauthorised sharing of user IDs and password this lead to risk in
SWIFT transaction in PNB case employee used two or at times three
officers passwords this is where PNB failed
 Follow The Standard Practice -their is a standard practice of all the banks
that their should be rotation of employees in every three years their are
many reasons why job rotation is necessary few of them are job rotation
helps employees experience different responsibility with new learning
opportunities which help them to increase their productivity it also helps
them to work in different levels of department by understanding the
positions of it .In scam of Nirav Modi Punjab National Bank did not follow
the standard practice of job rotation this was not done were one of them
was posted on same position for seven years this was another reason where
PNB failed .
 The Maker Verifier - there will be certain approval stage where the chain
should not be broken i.e. before granting LoU .Were their will be presence
of credit limit and subscribed period the bank need to look after the stages
of approval before sanctioning the LoU and should not miss any stages in
verifying it the live example was this is the Nirav Modi scam this mistake
was made by Punjab National Bank they didn't follow the approval
verification stages before issuing Letter Of Undertaking they underwent by
providing LoU without sanctioning credit limit and expiry of prescribed
period of 90days to Nirav Modi and Mehul Choksi so many of them were
not repayed
 Blockchain - this helps bank to record all the transaction this helps to
detect the frauds at initial stage were actions can be taken into consideration
this is the new technology driven to reduce, ratify the fraudulent transaction
that bank faces in case of PNB Nirav Modi case didn't use this technology
their were no communication being recorded of issue of LoUS bank
reconciliation and confirmation process were not followed and the inter-
bank transaction ,communication which involved in lending overseas
branch was also not maintained this caused huge loss to bank
 Training - frequent training stages should be performed in order to bring
out the awareness among employees about the frauds what to prevent
during process and training not only useful for awareness but also helps in
undergoing for upgrading of skills required so that they must be aware of
new technologies which help in prevent in frauds Their is being noticed in
Nirav Modi case that one of the employee of PNB used 2 to 3 times officers
password were it gave risk on SWIFT transaction. Though it was asked
during the orientation and training programs that the passwords sharing is
completely prohibited to all the members of bank.

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 Audit - it is important to present the internal and external audit at right

time. and present it to government auditor and get verified it with RBI
which will create a separate audit every year in case of PNB scam the bank
has condemned to finance minister saying that the last audit performed by
RBI was done in march 2009 the audit was not considered a potential risk
which gave drawback to PNB.

4. References:-
"PNB will honour commitments to banks in LoU case". The Economic Times. 28 March 2018.
Retrieved 1 June 2018.
"Nirav Modi is in UK, say Indian high commission officials - Times of India". The Times of India.
Retrieved 18 May 2018

1. "MODI, NIRAVA DEEPAK". Interpol.int. Retrieved 2 July 2018.