Blog Post

Uncovering Financial Mismanagement: A Case of Investment Risks and Investigation


Anuj Choudhary

Investing in any business can be a risk, and unfortunately, some investors fall victim to fraudulent schemes. We helped a group of investors who had invested USD $100 million in an educational institution providing coaching services for competitive examinations. The investors were concerned about the institution’s operations and suspected that their funds were being misused. Our team of experts took on the case, employing a range of techniques and procedures to uncover the truth.

The institution had raised USD $100 million from a group of investors nearly half a decade prior to our involvement. The investors were facing issues related to revenue and collections, as well as investments made by the institution. The institute was providing coaching to students appearing for competitive examinations.

Our team’s first task was to address the issue related to revenue and collections. We found that the institution was not recording cash collections properly, and excess money was being diverted to the promoters and management under the guise of discounts. We discovered several discrepancies between the student collection data and bank statements, leading us to suspect that cash collections were being underreported. Additionally, the institution had a long list of debtors who had not paid their dues for more than four years.

We conducted a thorough analysis of the institution’s revenue and collections practices and discovered numerous irregularities and fraudulent activities. To further investigate, we utilized Benford’s Law to analyze the distribution of first digits in cash collections records, which allowed us to identify any anomalies or deviations from the expected pattern. Our procedures revealed significant discrepancies in the institution’s revenue and collections practices. We recommended implementing better collection practices, establishing appropriate approval protocols for discounts, and conducting regular financial audits to ensure compliance with policies and regulations.

The second issue was related to investments made by the institution. The investors were concerned about the inter-corporate loans that the institution had extended to a few entities, including individuals who were not servicing their loans properly. They were also worried about the USD $15 million invested by the institution in the form of the acquisition of subsidiaries, which turned out to be futile.

Our team initiated transaction testing procedures to investigate this matter, reviewing the loan agreements and investment documents to identify any potential irregularities or violations of policies and procedures. We conducted a detailed review of the loan and investment transactions, including the flow of funds, to identify any suspicious or unusual activity. Additionally, we gathered information through open- desktop searches/public domain searches to learn more about the borrowers of the inter-corporate loans and the subsidiaries that the institution had acquired.

Our investigation revealed that the promoter of the institution had entered into related party transactions with his past students in the form of inter-corporate loans to their paper companies. These transactions had not been disclosed to the investors, and the money was being siphoned off for personal gain. We presented our findings to the investors, and legal action was taken against the promoters and management. The investors were able to recover a significant portion of their funds.

This case highlights the importance of conducting thorough investigations when there are suspicions of fraudulent activities. Our team of experts employed a range of techniques and procedures to uncover the truth and helped the investors recover their hard-earned money. We were committed to using our expertise to ensure that businesses operate ethically and transparently, providing our clients with the peace of mind they deserve.

In conclusion, our team’s comprehensive analysis and diligent investigative procedures were crucial in identifying irregularities and fraudulent activities in the educational institution’s revenue and collections practices, as well as uncovering related party transactions and mismanagement of investments. Our findings helped the investors make informed decisions and take corrective actions to improve the institution’s financial management and also mitigate future risks.

Our learnings from this case:

·Conducting thorough investigations is crucial in identifying irregularities and fraudulent activities.

·Due diligence should be conducted before investing money in any scheme to mitigate risks.

·Having a robust internal control system in place can prevent fraudulent activities.

·Proper recording of revenue and collections practices is essential to avoid financial mismanagement.

·Transparent disclosure of related party transactions is necessary to maintain ethical business practices.


Bio about Anuj Choudhary

Anuj is an accomplished forensic consultant with over six years of cumulative experience in the forensics and risk space. He has worked on complex and high-profile projects for a diverse range of clients. Anuj’s exceptional leadership skills were honed during his tenure as a Manager at EY in its Forensics Practice and as an Assistant Manager at BDO in India in its Business Advisory Practice, and he currently works with Grant Thornton India in the Forensics Practice. Anuj possesses expertise in several areas, including forensic investigations, claim computation, dispute support, ethics, integrity due diligence, pre-deal assessments, and big data analytics. He has demonstrated his ability to deliver successful projects for law firms and their clients. Moreover, his diverse skill set includes successfully implementing large-scale tech projects and providing training and education on various topics to corporates, regulators, and teams. Anuj’s contributions to the field of forensics, cyber, and risk are noteworthy. He has written various articles on these topics. Anuj is a qualified Chartered Accountant and holds several certifications, including CISA (ISACA), CISM (ISACA), and Forensic Accounting and Fraud Examination (West Virginia University), among others. Anuj is also an associate member of ACFE.

SOURCE: ACFE Insights – A Publication of the Association of Certified Fraud Examiners

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