The Dangerous game that could cost you Everything!
In continuation of last week’s article on fraud, let’s tackle a controversial question head-on: What happens if you don’t report fraud? Or worse—if your company covers it up without investigating? Having spent 23 years in compliance, I've seen how the fallout from such decisions can snowball from internal whispers to full-blown corporate disasters.
Today, we’ll explore the kinds of fraud that need to be reported under IFRS standards and the Companies Act, 2013, and what happens when companies fail to take action—especially in the eyes of the law.
Why Timely Fraud Reporting Matters
Picture this: an internal audit reveals suspicious activity—mismanaged funds, inflated purchase orders, or phantom vendors. Rather than raising a red flag, management decides to sweep it under the rug, thinking they’ll avoid a scandal. But what happens when the cover-up is exposed months later? The damage isn’t just to the bottom line—it’s to the company’s very credibility.
In listed companies, failing to report fraud isn’t just unethical—it’s illegal. Transparency isn’t just a nice-to-have; it’s a legal obligation. And the consequences of avoiding it can range from hefty fines to the very public destruction of the company’s reputation.
What Fraud Needs to Be Reported?
Over the years, I’ve worked closely with key business leaders and directors to ensure that everyone understands the types of fraud that must be reported—no exceptions, no excuses. Here's what the law demands:
Under IFRS (International Financial Reporting Standards):
Under the Companies Act, 2013:
The Role of KMPs and Directors: Your Head’s on the Block
Let me be crystal clear: if you’re a KMP or a director, you’re personally responsible for reporting fraud. Turning a blind eye isn't just risky—it’s illegal. And in the event of a cover-up, the consequences aren’t just for the company; they’re for you too.
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Consequences of Not Investigating Fraud
In my experience, choosing not to investigate fraud or intentionally hiding it leads to consequences that can far outweigh the initial problem. For listed companies, the risks are magnified—both under Indian law and IFRS standards.
Legal Consequences Under Indian Law
Global Fallout: IFRS and Financial Integrity
The Cost of Covering Up Fraud
Let me share a real-world example. A company I once worked with uncovered a procurement fraud that had been going on for years. Instead of investigating it immediately, the leadership chose to delay action, hoping it would quietly go away. It didn’t. By the time the fraud was discovered, it had grown into a massive issue—leading to major financial losses, stock price collapse, and high-level resignations.
And the damage didn’t stop there. The reputation of the company took a permanent hit, with media coverage highlighting the fraud and the cover-up. Restoring trust after such a scandal? Almost impossible.
Proactive Investigation: The Key to Prevention
In my role as a compliance officer, I work closely with business leaders, finance teams, and auditors to ensure we have robust controls in place to detect fraud early. Early detection is critical. If we catch fraud before it escalates, we have the chance to mitigate the damage and protect the company’s reputation.
Hiding Fraud Will Destroy You
If you take one thing from this article, let it be this: not reporting fraud is far more dangerous than dealing with the consequences of the fraud itself. The longer you wait, the more catastrophic the outcome. Whether you’re a KMP, director, or part of the compliance team—transparency is your greatest weapon. The cost of hiding fraud will destroy not just your company, but your career as well.
So, the next time you’re faced with fraud, think carefully. Will you report it and deal with the fallout responsibly, or will you hide it—and risk everything?