Govt kicks off early warning system to detect corporate frauds

The government has set up an early warning system to detect Satyam-like corporate frauds on a pilot basis by keeping the accounts and activities of 50 identified companies under the scanner.

The government has set up an early warning system to detect Satyam-like corporate frauds on a pilot basis by keeping the accounts and activities of 50 identified companies under the scanner.

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"We have already got (working) with Sebi. We have worked out a model of the early warning system (EWS). We are already running a pilot project... With 50 companies. We can now say with confidence that the EWS is already in operation," Corporate Affairs Minister Salman Khurshid told PTI.

The experience gained in operating the pilot project to detect corporate frauds would be used in fine-tuning the system and giving it a final shape, Khurshid said, without disclosing the names of the companies which have been put under the scanner.

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

After the multi-crore Satyam fraud, which went on for several years till its founder B Ramalinga Raju disclosed it, the ministry decided to set up a system to pick up early signals of misconduct and take preventive measures.

With the EWS, ministry sources said, the government would look for unusual developments by scrutinising quarterly results of companies, their public announcements, filings with exchanges, tax returns, media reports etc. And detect wrong doings.