CA KARAN MEHENDIRATTA

Email: consultant.karan19@[Link]

FORENSIC
AUDIT
REPORT

Auditee: World Blue Rays Ltd.

Email: worldblue@[Link]
 1

INSTRUCTIONS

This Report is Strictly for Private and Confidential

Purpose. It is mockup Investigations into allegations
of Unremitted Missing Funds and Profitability Erosion
from Company Accounts. The Sole Purpose of
Preparation of this Report is to Submit a Sample
Forensic Audit Report to ICAI to obtain Certification of
Forensic Audit and Fraud Detection. All the names,
References and Figures related to Report are Fictional
and shall not be correlated to Living non Living Person
or Business or Organization.
 2
CONTENTS

Overview .................................................................................................................... 1
ACCRONYMS............................................................................................................... 1
Executive Summary .................................................................................................... 2
Backgound .................................................................................................................. 3
Allegations.................................................................................................................. 4
Detailed Methodolgy .................................................................................................. 5
Methodology Verification ........................................................................................... 6
Main Report ............................................................................................................... 7
Findings Details – Point Wise Finding and Analysis ..................................................... 8
Disclaimers ................................................................................................................. 9
 3
OVERVIEW

The present assignment was handed over to CA Karan

Mehendiratta to conduct the forensic audit of World Blue
Rays [Link] there were various allegations against the
company for misappropriation and siphoning of funds of the
company and diversion of assets.

The engagement letter was executed on 1st January 2020, as

per which the scope of forensic audit was defined to be as
under:
 Analyses of all relevant documents including the
secretarial, accounting and administrative documents in
respect of the Company and its group and subsidiaries
companies;
 Extracting data and collecting documents from all the
concerned third parties including government / statutory
authorities and banks;
 Interviews of management, staff and employees, and
other relevant third parties; and
 Preparation of Report.
ACCRONYMS 4

Accronyms Description
 5
BACKGROUND
& OBJECTIVE

World Blue Rays Ltd is a Real Estate Company working in the area
of Construction, Land Acquiring and Selling from past 30 Years
having Head Office at New Delhi. At Present the Company is having
its Operations at below mentioned Locations:-
1. Pune, Maharashtra
2. Ranchi, Jharkhand
3. Nagpur, Maharashtra

Currently in 2019, WBRL has proposed to acquire M/s Srikon

Pharmaceuticals Ltd. a Pharmaceutical Company of Net Worth
Rs.350 Crores in its Annual General Meeting on 29.09.2019. From
Past 7 Years WBRL is incurring huge Losses. The Company Debts
Portion has reached to Rs.950 Crorers (Approx). The major
Shareholder of the Company Mr. Nitin Khemchandani and FIIs had
appointed CA karan Mehendiratta to Provide Forensic Audit Report
on the Company Operations and Comment on the Genuiness of the
Proposal asked to Acquire SriKon Pharmaceuticals Ltd.
EXECUTIVE 6
SUMMARY

[Link]. AREA OF AUDIT RISK IMPLICATIONS AND FRAUD SCENARIO

1. Land Acquisition - Major Properties Acquired during the past
Papers Six Years were in the name of Famous
Active Politicians which indicates high
Risk of Political Influence.
2. Investments - Investments involved Shares, Fixed
Deposits and Properties. Being a Real
Estate Company Land shown as
Investment indicates Possibility of
Misappropriation of Assets
3. Current Assets - Advance to many Sellers for Land
Purchase involved Huge Cash payments in
small Lots indicates Potential Risk Area of
Misappropriation.
4. Borrowings - Loan against Property borrowed from
PMC bank, IDBI Bank, Yes Bank by
providing collateral as Property of Pune
for Construction Purposes and Utilized for
Acquiring Property which are in Dispute
against Judicial Authorities indicates
Potential Risk of Fraud Involved.
5. High Labour Cost - Low Performance in WBRL Revenue
Position and incurring of high Labor Cost
indicates Red Flags Area
EXECUTIVE 7
SUMMARY

6. Material Procurement - Cost of Raw Material is high when

compared to Other Market Drivers
indicates potential Risk of Kickbacks or
Forgery in Tender Documents
7. Management - Management Observation in annual
Observation in Annual Report relating to Description of
Report Company Performance indicate
position of “Ever Greening Technique”
applied
8. Employees - Payroll Register shows Employees with
same address and Mobile Number
with same Time in and Time out in MIS
indicates Ghost Employees in Register
9. Srikon Pharmaceuticals - Mr. Sudhanshu Sinha (Managing
Director of Srikon Pharmaceuticals),
Son of Mrs. Arpita Sinha who is Sister
of Managing Director of WRBL
Company indicates Red Flag.
PROCESS
8
FLOW

MATERIAL PROCURMENT PROCESS

PROCESS 9

FLOW

COMPANY ACQUISITION PROCESS

APPROACH 10
 11
OBSERVATION
& METHODLOGY

OUR OBSERVATION IS DIVIDED INTO FOUR SECTIONS

 SCRUTINY OF LAND PAPERS AND PURPOSE OF INVESTMENTS

 LEDGER SCRUTINY OF BOOKS OF ACCOUNTS
 SCRUTINY OF STAFF EXPENSES WITH SUPPORTING DOCUMENTATION
 RED FLAGS IN ACQUISITION OF SRIKON PHARMACEUTICALS

The above Observation is explained by Applying a Fraud Tree Principle to understand

the Fraud Risk areas in an Effective and Efficient Manner. Fraud Tree is explained in
Detail manner in Page no.12
FRAUD 12
TREE

Forensic frauds are those in which an employee, manager, officer, or owner of an organization
commits fraud to the detriment of that organization. The three major types of Forensic fraud are:
Corruption, Asset Misappropriation, and Fraudulent Statements. The complete classification of
occupational fraud, frequently referred to as the Fraud Tree, is shown below:
FRAUD 13

TREE

Fraud Tree is majorily Classified into three major types of Forensic fraud are :

1. Corruption
2. Asset Misappropriation and
3. Fraudulent Statements

CORRUPTION
A scheme in which an employee misuses his or her influence in a business
transaction in a way that violates his or her duty to the employer in order to gain a
direct or indirect benefit.

ASSET MISAPPROPRIATION
A scheme in which an employee steals or misuses the employing organization’s
resources .Assets are Wrongly Classified into different Categories to Apply Window
Dressing in Financial Statements

FRAUDULENT STATEMENTS
A scheme in which an employee intentionally causes a misstatement or omission of
material information in the organization’s financial reports.
CORRUPTION 14

The Certified Fraud Examiners have divided the corruption section of the
fraud tree into four parts:

1. CONFLICTS OF INTEREST :- Conflicts of interest occur when a person in

power has interests outside of his or her job and sways their decisions
to benefit these interests. Not only auditees can be corrupted—
auditors can, too.

2. BRIBERY :- Bribery is when a person pays an official to make a decision

in his or her favor. Contractors for the federal government frequently
appear in the news for bribing federal officials in hopes of landing
lucrative contracts.

3. ILLEGAL GRATUITIES :- When someone gives a public official a gift, that

isn’t necessarily tied to any particular favor, but the implication is the
expectation of future favor for the gift. Imagine a government official
who encourages corporations to fund his campaign. The corporations
and the official understand that the corporation will experience
preferential treatment

4. EXTORTION :- The difference between bribery and extortion is in who

makes the first move. Bribery is initiated by the persons wanting favor
from the person. Extortion is initiated by the person in power.
ASSET 15
MISAPPROPRIATION

ASSET MISAPPROPRIATION IS SUB DIVIDED INTO BRAOD TWO

CATEGORIES

1. CASH &
2. INVENTORY AND ALL OTHER ASSETS

CASH IS SUB CLASSIFIED INTO THREE CATEGORIES

 Theft of Cash in Hand

 Theft of Cash Receipts
 Skimming Stratergy
 Cash Larceny
 Fraudulent Disbursement
 Billing Schems
 Payroll Schemees
 Expense Disbursement Schemes
 Cash Tampering
 Register Disbusements

INVENTORY AND ALL OTHER ASSETS IS SUBCLASSIFIED INTO TWO

MAJOR CATEGORIES

 Misuse
 Larceny (False Sales Transactions, Asset Requisitions and Transfers etc.)
 16
FINANCIAL
STATEMENT FRAUD

DEFINATION

The financial statement fraud involves the intentional

publication of false or misleading information in financial
statements. The precise definition may vary slightly from
country to country, but it is common that fraud involves
breaking the law. A formal definition can be found in Section
240 of the Statement on Auditing Standards (SAS) 122 issued
by the American Institute of Certified Public Accountants
(AICPA) titled Consideration of Fraud in a Financial Statement
Audit. The definition provided is Chapter 2 Overview of
Financial Statement Fraud
“ An intentional act by one or more individuals among
management, those charged with governance, employees, or
third parties, involving the use of deception that results in a
misstatement in financial statements that are the subject of an
audit.”

Major Classifications are:

1. Asset / Revenue Overstatements
2. Asset / Revenue Understatements
17
SCRUTINY OF LAND 18

PAPERS

ANALYSIS - I
WBRL has Invested in many Land which pertains to areas such as Kolkata, Jharkhand,
Pune, Nagpur during the Past 3 Years. Detailed List of Such Land are as Follows :-
Sr. Address State Purchaser Occupation of Relationship Market Purchase Disputed/Non
No. Purcahser with Value Value Disputed
Political
Parties
1. Kh. 12/1 Nagpur Mr. Ritesh Business Son of Ex- 165 190 Non Disputed
Mauza Deshmukh Chief Crores Crores
Jamtha Minister
Maharashtra
2. Kh.61/1 Pune Mr. Salil Agriculturist Nephew of 1712 2125 Disputed
Mauza- Patil Ex. Home Crores Crores
Vandgaon Minister
Budruk Maharashtra
3. Kh. 51/6 Kolkata Mr. Amit Business Son of Late 192 229 Disputed
Mouza- Ghosh Sister of Ex- Crores Crores
Ranabhutia Finance
Minister
India
4. Kh. 3 Kolkata Mr. Saurav Business Nephew of 65 121 Disputed
Mouza Gangul Current Crores Crores
Dhapa Chief
Manpur Minister
5. Kh.83/1 Kolkata Mrs. Reeta Agricultuist Neice of 30 75 Disputed
Mouza Ghosh Home Crores Crores
Hadia Minister
West Bengal
6. Kh.42/9 Pune Mr. Business Brother of 655 988 Non Disputed
Mouza Deepak Ex-Guardian Crores Crores
Bibwewadi Patil Minsiter
TOTAL 2819 3728
Crores Crores
SCRUTINY OF LAND 19

PAPERS

After Details analysis of above Schedule it is clearly Understandable that the

WBRL has purchased these properties above market Value and Purchaser of
the above parties belongs to People who are Directly or Indirectly related to
Political Influenced People. These investments are made to provide Bribery
or Kickbacks in Legal form to Acquire High Value Government Tenders
during the past 5 Years. Tenders Received during the last 5 Years are as
Follows:

[Link]. Tender Detail Tender Amount Percentage of

Completion
certified by
Engineer
1. Government Housing Society 180 Crores 10 %
in Kolkata
2. Construction of Employee 1610 Crores 5%
Quarters of PWD in
Ranabhutia
3. Construction of Road Canal 2518 Crores 30 %
Contract
4. Laying of Pipelins for Sewage 3510 Crores 65 %
in Vidharbha Region
Maharashtra
5. Constructing Underground 1210 Crores 9%
Sewage of 250 Km in Pune City
 20
LEDGER SCRUTINY OF
BOOKS OF ACCOUNTS

ANALYSIS – II

INVESTMENTS
WBRL had invested amount in property oF Rs.24,376.17 Lakhs till
31st march 2018 , extract for the same is enclosed below.
 21
LEDGER SCRUTINY OF
BOOKS OF ACCOUNTS

After Detailed Scritiny of abaove statement with books of

Accounts produced before us. WBRL has classifeied below list of
Invesments in Schedlue of Property which is in nature of Current
Assets to Show Lower Current Asset Ratio in Financial Position.

Nature of Investment Amount

Investment in Pune Plots 3569 Lakhs

Investment in Nagpur Land 2144 Lakhs

Investment in Mumbai Land 2644 Lakhs

8,357 Lakhs

This Type of Presentation that is Closing Stock Shown in

Investments indicates misappropriation of Assets under the Head
of Fraud Tree which is termed as Window Dressing or Ever
Greening.
 22
LEDGER SCRUTINY OF
BOOKS OF ACCOUNTS

CURRENT ASSETS
While performing vouching the books of Accounts we have encountered
two major heads in Current Assets which required enlightenment. Those are
as follows:
1. Advances to Parties for Purchase of Property
2. Advances to Subsidiaries

I. ADVANCES TO PARTIES
WBRL has given Advances of Rs. 12,397 Lakhs to Individuals and Partnership
Firms which belongs to Property Investment in Pune. After Detailed
Vouching we observed that the Major parties do not Exist on record and
Identity Proof of same is not available. Amount paid to these parties is in
Cash. Sample Annexure are as under :
Sr. No. Name of Seller Area Amount

1 Rupesh Sorgile 15 Acres 50 Lakhs

2 Haribhau Umak 3 Acres 35 Lakhs

3 Pankaj Raut 3.67 Acres 25 Lakhs

4 Sudhakar Sarnaik 6 Acres 85 Lakhs
5 Kishor Dahiwale 9 Acres 1.25 Crores
6 Ramesh Ramteke 2 Acres 9 Lakhs
7 Nagesh Nisholkar 25 Acres 3 Crores
 23
LEDGER SCRUTINY OF
BOOKS OF ACCOUNTS

I. ADVANCES TO SUBSIDIARIES

WBRL has given Advances of Rs.13,567 Lakhs to Below mentioned

Subisiaries which are as follows:

Sr. No. Name of Subsidiary Amount

1 Trilok International Limited 4129 Lakhs
2 Fox Invesments Pvt. Ltd. 2334 Lakhs
3 FinTech Housing Finance Pvt. Ltd. 4630 Lakhs
4 True Suretech Pvt. Ltd. 2474 Lakhs

After analyzing the Books of WBRL and extracts received of above

mentioned Companies we have observed that Fin Tech Housing
Finance Pvt. Ltd. Iand Trilok Internationational is running into
Losses and have further Advances to Srikon Pharmacuaticals Ltd.
Both Contribution equals to Rs.7966 Lakhs in which 25% of the
amount is through Cash Mode.
 24
SCRUTINY OF STAFF
EXPENSES

WBRL has Paid Casual Labour Payment during the Year of Rs.
12,330 Lakhs. WBRL has maintained Payroll Register in which we
have encountered payment of 6,575 Lakhs of Cash Payment to
below mentioned Labors as Yellow Flags since no ID Proof or
Physical Presence of these parties were not made available to our
team during the Course of Audit.
[Link]. Name of Party Position
1 Chinmay Sontake Supervisor
2 Sumant Shende Labour
3 Srilok Namdaar Contractor
4 Madhav Ramteke Contractor
5 Kripal Ninawe Contractor
6 Trilochan Singh Contractor
7 Shekhar Contractor
8 Baljinder Chima Contractor
9 Namdaar Singh Contractor
10 Ninne Shende Contractor
11 Shankar Iyengar Contractor
12 Ved Prakash Sharma Contractor
13 Tekpal Singh Arora Contractor
 25
SCRUTINY OF STAFF
EXPENSES

EMPLOYEE STAFF

After Performing Attendence Sheet from Excel Generated through Thump

Print Machine we came to above Extracted Parties which were have Full
Attendance during the Year and their Time In was 9:00:00 AM and Time Out
was 7:00:00 PM daily which is Most Likely to be Impossible . Hence we have
treated these employees as Fake Employees . Total Expenses in the Books of
Accounts pertaining to these employees which is Salary, Staff Advance, Staff
Loan amounts to Rs. 90 Lakhs
 26
SRIKON
PHARMACEUTICALS

FAMILY TREE
OF WORLD BLUE RAYS LIMITED

WBRL (SHAREHOLING
SHAREHOLING PATTER)

PROMOTER 57 %

FIIS, MF AND
WBRL FINANCIAL 25 %
INSTITUTION

PUBLIC HOLDING 18 %

WBRL (PROMOTER
(PROMOTER DETAILS
DETAILS)
MR. VIVEK SINGHANIA

MR. RAJENDRA ARORA

MR. RAM VILAS SHARMA

RAMKISHAN SWAMY
 27
SRIKON
PHARMACEUTICALS

FAMILY TREE
OF SRIKON PHARMACEUTICALS

PROMOTER 70 %

FIIS, MF AND
SRIKON FINANCIAL 10 %
INSTITUTION

PUBLIC HOLDING 20 %

SRIKON (PROMOTER DETAILS

PROMOTER DETAILS)

MR. KISHAN RAO

MR. HARIHAR RAM

MR. TEJPAL CHADHA

MR. MADHAV KISHAN

 28
SRIKON
PHARMACEUTICALS

BRIEF HISTORY

Srikon was founded by ,Mr. Kisan Rao on 1998 with the motive to
manufacture medicine related to Patients dealing with diseases of
Brain such as Depression, Brain Nerves Damage, Tumour etc. In
2004 Mr. Harihar Ram and Mr. Tejpal Chadha Join Srikon to
expand its Distibution chain and setup Hospitals. However Cpany
was majorily in Losses from 4 Years . In 2008 Mr. Madhav Kishan
took Interest to Acquire Srikon and acquired Major Shareholding
Pattern in Srikon. At present Mr. Madhav Kishan has 49 % Shares
in Srikon. Srikon has total Loss of Rs.630 Crores s per its Financial
Statement of 31st March 2018.

RELATIONSHIP OF SRIKON WITH WBRL

Mr. Madhav Kishan is husband of Mrs. Sunita Kishan who is real

Sister of Mr. Vivek Singhania CMD of WBRL
WBRL has provided financial Capital to Srikon Indirectly though
his Subsidiaries of Rs. 12,390 Lakhs.
Mr. Harihar Ram is neighbor and old Friend of Mr. Ram Vilas
Sharma who is Executive Director in WBRL.

As per Annual Report of WBRL in Section of Directors Report

Srikon has provided a Price of Rs. 860 Crores to Sell its Holdings to
WBRL.
 29
SCOPE AND
LIMITATIONS

The following points should be borne in mind while reading these

observations:
 The engagement was carried out in accordance with our engagement
letter dated 1st January 2020 and the terms & conditions mentioned
therein
 The scope, coverage and approach mentioned in this report was
arrived at based on discussions with Mr. Sudesh Mehra
 All matters, issues and information referred to in this report arise
from our discussions with identified personnel involved in
overseeing/managing the operations at the Client
 Our findings are based on the sample transactions reviewed by us
and are based on the information/documents (including
photocopies/scan copies and emails) furnished to us and to the
extent reviewed by us. Though our endeavor was to analyze/review
the documents in their complete perspective and present our
findings thereupon, such findings are based only upon
data/information to the extent reviewed by us.
 Should additional relevant statements or documents be made
available subsequently, it may be necessary to revisit the findings
accordingly
 We have relied on the documents/information furnished to us by
the Client and its officials. It may not be possible to check the
accuracy and authenticity of all the information provided to us. We
were provided only with the photocopies of documents in some
cases and our observations are based on analysis of those
documents.
 30
REFERENCES

1. Sample Report of Forensic Audit by “ Institute of Chartered Accountants

of India”
2. “report on forensic audit investigation december 2008 - chief audit and
evaluation executive” –CAA California
3. Articles on Unconventional Methods of Accounting by “CA Chetan Dalal”
4. Study on Forensic Accounting and Fraud Detection by “ Institute of
Chartered Accountants of India”
5. Study on Unconventional Metods in Spectial Audits and Investigiation by
“ Institute of Chartered Accountants of India”
6. Forensic Audit Report of Arid Lands Resource Management Project –
Phase II Redacted Report by “The World Bank Group Integrity Vice
Presidency”
7. Forensic Audit of Non Performing Assets – Navigating Hidden Threats by
KPMG
8. The Case Analysis of the Scandal of Enron by Yuhao Li Huntsman School
of Business, Utah State University, Logan city, U.S.A
9. “Professional Program on Forensic Audit by ICSI”