Business detectives’ industry booms as companies attempt to rein in employee fraud & corruption

“Is there any point to which you wish to draw my attention?” “To the curious incident of the dog in the night-time.’ “The dog did nothing in the nighttime.” “That was the curious incident,” remarked Sherlock Holmes

— Exchange between inspector Gregory and Sherlock Holmes in “Silver Blaze”

Dilip Shah (not his real name) had perfected the art of living a double life. At his work place, Shah was the perfect loyalist, with 35 years in the company. He had the owner’s ears and was his eyes. When Shah would leave for home, there was no reason to secondguess his moves. He did not have an opulent lifestyle or a covert life after sundown.

Shah did nothing in the nighttime. But he had his secrets. Shah had perfected the art of making money out of the company’s suppliers. All these transactions were done in cash and all cash was invested in properties. In fact, he had around 15 times his regular savings invested in properties. He left no trail, neither electronic nor paper. With his experience in the company — Shah was in his late 50s — it was possible for Shah to skim the supply chain smartly.

That was the curious incident. Forbidden fruit of course has to be bitten into. Shah, for his part, occasionally enjoyed his secret wealth by dining at high-class restaurants. Shah’s spurts of the lavish life didn’t go unnoticed, and duly made his boss suspicious; he called in the investigators, from a Big Four audit and accounting firm.

Initially, they found nothing apart from his occasional dining splurge. But the gut-feel of the fraud-trackers told them that something was amiss, so they kept at it. Then one fine day at a social setting, Shah couldn’t resist bragging about his knowledge of properties. That was just the opening the investigators were looking for — and for them to begin digging into his asset trail. It was only a matter of time before they dug up the hidden treasures.

When confronted, Shah broke down. He confessed to building his wealth with bribes from suppliers. The owner of the business was aghast and heartbroken. Indian businessmen have now braced themselves for such heartbreaks. Even as corruption in business has become a scourge with scandals involving thousands of crores and countless businessmen and politicians, within the corporations themselves promoters are grappling with graft and bribery that can play havoc with operational and financial performance.

There are two obvious options to deal with such situations: tighten processes and systems to minimize such leakages; and take recourse to police and legal action when crimes are detected. It’s, however, between these two extremes that exists another avenue for keeping criminal activity in check — call in the detectives.

Think detectives and the first impression is that of gumshoes operating out of holes in the wall and thriving on bread and butter assignments like infidelity checks and spying on spouses. Today, however, the branch of business investigation has evolved and is a far more intense and professional one. With the entry of the Big Four audit and accounting firms and foreign investigation firms, the services on offer have a huge range and depth. These investigators rely a lot on human intelligence, marketing intelligence gathering, tapping of anonymous sources on top of public document searches and analytics. The assignments they pick up range from investigating fraud and espionage from within (by employees) and without (by suppliers, competitors and others).

Consider for instance, this petrochemicals company that faced repeated thefts of petrol whilst transporting from its refinery in Gujarat to Rewari in Bhopal. The company engaged the services of a detective firm whose men kept a track of the entire travel of the oil tankers and soon unearthed how and where the petrol was being stolen.

Choose Your Sleuth

Meet Reshmi Khurana, India managing director for Kroll, a New York City-headquartered corporate investigations and risk consulting firm. A former McKinsey hand in New York, Khurana had moved to investigations in Kroll, which was looking for people with understanding of business processes.

Kroll had experience of handling investigations globally — from high-profile kidnappings to tracking down Saddam Hussein’s assets — but needed people who, as Khurana puts it, “know how money is stolen from businesses, like channel stuffing in the retail industry, or round-tripping in the gems and jewellery industry.” Or take Dhruv Chawla, executive director of Pricewaterhouse-Coopers (PwC) who relocated from the US to India recently. Chawla confesses he is still convincing his wife that moving back to India was a good idea. He needed little convincing himself, having been mandated with the task of setting up a forensic lab for PwC at the cost of $1.5 million (Rs 9-10 crore) eight months ago.

Then there’s Naman Jain, managing director of Delhi-based detective agency Sleuths India, which offers services ranging from the personal to the corporate; Jain lets on that 70% of his business today comes from corporate clients.

His offerings include corporate espionage, skip-tracing (finding missing people), background checks, patent and insurance-related investigations, mystery shopping and surveillance. Another Big Four firm KPMG too has brought in some senior partners for its services — Ritesh Tiwari from Australia and Jagvinder Brar from the US. And Deloitte has roped in, amongst others, Amit Bansal from the infrastructure industry and trained him in forensics to serve the investigative needs of the vertical.

Deloitte’s senior director Rohit Mahajan explains that the firm is offering a wide range of services for different industry verticals. “As frauds are becoming more industry specific, we create industry-specific solutions like competitive bidding and toll road frauds in infrastructure or stress assets in banking, good manufacturing practices in pharma or front running [when a broker takes advantage of advance knowledge from clients to trade on his own account].”

Dinesh Moudgil, himself a former dealer and today executive director for assurance at Ernst & Young, heads what is commonly called ‘background checks’. The service however goes far beyond just that — in fact it checks on companies that are being invested in and their promoters and their connections.

Sandeep Dhupia, head of forensics at KPMG, says that one area of investigation that worries companies a lot is sexual harassment and, for every senior hiring, prospective candidates are checked out. “How do they behave in parties or how do they behave in offices are some of the questions we are being increasingly asked to address,” Dhupia says. The answers lie with the people who know the candidate and Dhupia’s team has to coax that information out through gentle prodding and discreet inquiries.

That calls for people with an ear to the ground and nose to the grindstone. Large field teams of sleuths work on these cases, comprising former policemen and even former investigative journalists. ‘Interview skills’ or ‘an inquisitive mind’ are two key attributes needed. As well as the ability to handle confrontations delicately.

Often at the end of an investigation the investigators interview the subject in the presence of the HR and legal representatives. The idea is to get the subject to own up. Apart from skills it needs sensitivity as the scenes may become emotional.

Need for Intelligence

Both Jain of Sleuths India and Khurana of Kroll confirm that there has been an at least 50% annual growth in demand over the past two years for business investigations. The demand for detectives today goes far beyond the usual background checks on hires and compliance with the US Foreign Corrupt Practices Act.

It may be tempting to conclude that during a downturn demand for investigation services increases as businesses strive to squeeze out profits and eliminate wasteful expenditure. But that may only be partly true. “Our business is nicely counter-cyclical,” points out Khurana. “During the boom time we investigate investee companies’ backgrounds — those that cash-flushed businesses want to invest in or buy — and during downturns we try to find where the money went.”

Private equity (PE) firms, which are scurrying for largely elusive exit routes after investing during the boom years, are one source of demand that is a constant in this industry. If an investee company, for instance, hasn’t lived up to expectations and the PE investor has doubts about how the money was spent, it can opt for an investigation.

PE investors have since wisened up and now started doing this kind of covert due diligence on their investments before putting in their money. “Earlier it would be finding out what went wrong. But now PE firms come to us first. I call it ‘hurdle diligence’. PEs use this as a hurdle and only when crossed would they proceed with their investment process,” says Dhupia of KPMG Kroll has also seen a lot of private sector banks troop in with cases where their loans have turned into non-performing assets. The challenge here is to figure if the liabilities are a courtesy of a genuine case of business not doing well or if the promoter has siphoned off money. Another reason for the growing need to do covert checks on backgrounds has been the unravelling of the ‘political connections advantage’ in India.

Consider this example. Dhupia says he once got a request for checking out the vendors of a particular company. A questionnaire sent to the vendors by the company revealed that all 30 vendors had political connections. “When we inquired, we found that these connections were vague and were virtually non-existent. However, since the vendors thought it would be counted as an advantage, they ticked the yes-box.” They had no idea that political connections have turned from an asset to a liability. A firm gaining an advantage out of its political patrons can often face the brunt of the ire of political opponents after an election.

Keeping a check on vendors — local and international — keeps investigators busy. Says Moudgil of E&Y: “At least a fifth of all the work we do comes from Indian clients asking us to check on foreign subjects [including foreign inves-tors and companies invested in].” Moudgil further explains in the past when MNCs sought a check on vendors in India, their head office in another country would ask for the report to be sent to them confidentially without involving the Indian office. However, today the Indian offices of the MNCs ask for the reports and are actively involved in going through the results of the investigation.




Investigators are also relied upon to check out potential buyers of businesses. For instance, recently an Indian conglomerate wanted to divest a company and got a proposal from a foreign party based in the US. The conglomerate asked an investigator to look into the antecedents of the party. The investigations revealed that the group, led by a person of Indian origin, had been accused many times of violating laws and had been fined. The Indian party pulled the plug on the deal.

What Jain of Sleuths India says will send the chill down some relaxed spines. In fact a look at the website listing his clients is most educating — top Indian companies, top MNCs and top public sector companies are listed there. Jain says: “I have many PSU clients who have asked us to deal with different investigations. I have also done work for Central government and state government departments, but I cannot disclose details.”

The Covert Operator

Mahajan, who heads forensics at Deloitte, says: “Five years back the investigations were more focussed on finding evidence through access to records. Today the focus is on getting the information through market intelligence to validate suspicions before running an open investigation.” Discretion is often necessary as the parties involved do not want to rock the boat. Dhupia says: “Often the information can be used for smart negotiation.”

He explains how a PE fund, which came to know about certain conflicts of interest of a promoter, worked out an escrow mechanism so that the interests of both the sides were safe-guarded. “They used information constructively to negotiate and conclude a deal,” adds Dhupia. It cannot be useful, unless it is covert. Also a lot of the cases are referred as a part of dispute resolution or as a part of a legal strategy and in such cases keeping the operation under wraps is of paramount importance.

Says an investigator who wishes to remain anonymous: “Often when dealing with an employee fraud, the employer will confront the employee with evidence and try to recover some of the stolen wealth but will stop short of going to the police. If it is a public limited company, this will create a public scandal which is not in the interest of the company.” And Khurana of Kroll adds: “If there are five scandals out in the open, there are at least 15 that are not.” Then there is the competitive scenario in which an investigator is tasked to find out information about a rival or a rival’s strategy.

There are several shades of grey and debates about what is legal and what is not. Dhupia says: “I have been asked to get hold of the bank statement of an employee of a firm. That is something we do not do.” And Khurana of Kroll stresses that while looking for information on competitors, there is no question of seeking to disclose trade secrets. “If someone wants to know their competitors’ bid price, they may try and bribe someone to get it. We are not in that business,” she declares.

In fact this is one reason why the Big Four, with their reputation and brand at stake, are sought as investigators. They are expected to not cross the boundaries into illegalities.

Glamour and Grime

At the Big Four level, in 2013, there was a whole set of incestuous hiring in the forensics function. Deepankar Sanwalka, who headed it at KPMG, left the firm to join PwC with around 100 people. Rohit Mahajan, also from KPMG, left for De-loitte and KPMG had to rebuild its team. A large chunk of the team at the Indian arm of boutique investigative firm Protiviti moved to KPMG. Clearly, there is a shortage of trained people and huge demand for the ones who have learned the ropes. There are also a lot of freelancers used — sometime because they have to work in geographically remote areas where large firms do not have a presence.

Behind the glamour, there is always grime. Dhupia confesses that in one case for getting one piece of information his team had to talk to 26 different sources. More, even as the companies are bringing in professional and corporatized sleuths, the fraudsters are getting smarter and hiding better. They are able to steal because they are always one step ahead of the system. Says Chawla of PwC: “For any investigator it is important to be able to think like the fraudster in order to be able to detect the fraud.”

The problem compounds because in traditional frauds it was always possible to find a black book, the physical records of illegal transactions. Chawla says: “The importance of analysing electronically stored information lies in the fact that today most of these data is in electronic format and the traditional black book is also in electronic format.”

Chawla had begun his career at PwC’s financial advisory group in Chicago, and specialized in the forensic technology and litigation support services. What attracted him to this area was his ability to use both technical and business skills and at the same time some of the litigation and investigations projects he was involved in were high profile and public in nature.


Soon after he started his career, the Enron case happened and as a result of that regulations in US tightened and old-fashioned fraud reduced considerably. India, he feels, is somewhere in the middle — where old-fashioned fraud co-exists with some of the more sophisticated cyber crime related frauds (like debit cards etc).

He provides a vision of the future, where he thinks a lot of his work will have to be on social media and email analytics. For example, analytics show a fraudster usually changes the way he writes emails when he writes mails to his accomplices.

Holmes’ impatient cry in The Adventure of the Copper Beeches — “Data! Data! Data! Data! I can’t make bricks without clay” – takes on visionary connotations in the digital era.

CASE STUDY: Kickback King

After getting complaints from a whistleblower, an MNC asked the Indian arm of a Big Four firm to look into the operations of its domestic outpost and identify possible conflicts of interests of a member of the senior management and his family members — let’s call him Mr Z.

Feedback from sources with third parties indicated that Z was a recipient of kickbacks from vendors, usually about 5-7% of the value of orders. These kickbacks were routed through a close confidant of Z, also an employee of the company. Z kept all pricing-related matters of the company with himself. Discreet enquiries revealed that Z had been dismissed from his former company for similar integrity issues. Sources told the investigators Z had business interests in various other smaller entities through his relatives, many of which were in conflict with the business activities of the company.

CASE STUDY: Embedded Detective

This case was handled by an old-fashioned detective agency, called in to detect theft and pilferage from inside factory premises. The agency embedded its people as employees in the company. These men lived the life of workers and worked in the factory. They took up residence in the same areas where other employees lived and went drinking to their watering holed. Slowly they were able to uncover how the stock was being pilfered from within the factory premises. The same agency had also handled another case in a similar manner, infiltrating the ranks of a trade union.

Its mandate was to prove that while the employees of a closed factory were demanding backwages, they were employed at another company at the same time. The company found that out of 129 employees, 80% were employed at other companies.

CASE STUDY: Hardly Path-breaking

An Indian promoter group got a proposal for launching a pathbreaking product in India in healthcare from a company in Europe. The promoter asked one of the Big Four audit and accounting firms to check out the European company as it seemed a proposal that was too good.

The investigation, with the help of the firm’s counterparts in Europe soon revealed that this product had been launched in Europe 10 years back. It had created such a controversy in the continent that there was loads of material debunking the product. That apart the integrity of the group that was trying to now launch this same product in India through the Indian company was also suspect. As a result the product was dropped by the Indian company.

CASE STUDY: Cable Trouble

An MNC mandated a Big Four investigating arm to probe an Indian media and entertainment arm and its 20-plus vendors who were distributors of cable TV. The investigation had to be done through inspection of public documents, site visits and discreet inquiries. The investigation found 20% of these vendors did not exist — there were no documents available about them with the Registrar of Companies. It also found that there was a Mr X, who was the CEO of a multi-system operator or large cable TV distributor and this man was linked to 60% of the other smaller cable distributors.

Another 10% of the vendors were found to be owned by politicians and local mafia. In fact site visits to these offices often proved difficult as they were located in areas that can be best described as “rough”. Another 5% were found to have closed down operations and this was ascertained by discreet inquiries and visits.