Govt to fund private research on early fraud warning, use of IPO funds

New Delhi: The Central government will finance research by private entities on a host of issues meant to provide insights into policy making, including early warning of corporate frauds and how companies use funds mobilized from the public.

The move seeks to leverage the wealth of information available with the ministry of corporate affairs from various statutory filings by companies and limited liability partnerships. That will help to identify patterns of corporate behaviour that will help in policy interventions.

The idea is to “better utilise the repository of corporate sector data available with the ministry under the MCA2I e-governance system, with a view to extract knowledge from data that will eventually inform policy and facilitate decision making in a market driven economy”, the ministry said in a statement. The knowledge derived will have implications for corporate governance and faster, sustainable and inclusive growth, it said.

The ministry will also fund workshops and conferences on ten identified subjects under a ‘corporate data management’ scheme to be implemented by it.

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Regulators including Registrars of Companies and the Income Tax Department look at key financial parameters of businesses to detect potential regulatory breaches and to identify entities which lack economic substance but execute large, and sometimes circuitous, transactions for money laundering. RoCs conduct extensive data analysis about corporate ownership to ensure businesses disclose their beneficial owners correctly.

Ensuring regulatory compliance

The large volume of data available in the MCA21 statutory filing portal could help the government spot areas of weaknesses in governance and regulatory compliance. Ensuring that businesses use the funds raised from the public and financial institutions for their stated purpose has been a key area of oversight for RoCs and the Securities and Exchange Board of India (Sebi), as well as the ministry.

The research programme is expected to help the ministry in evidence-based policy making considering the huge database already available, said Amit Maheshwari, partner-tax at AKM Global, a tax and consulting firm.

The focus on early warning system for identifying corporate frauds and usage of funds has become extremely critical considering the country’s fast-growing economy,” said Maheshwari. “The proactive study or analysis of financial statements and related-party transactions can help the government to sense any possibility of money laundering or unfair practices, preventing dubious companies duping investors, employees, banks and other stakeholders.”

Subodh Dandawate, associate director-regulatory services at Nexdigm, a business and professional services company, said the illustrative list of themes under the ‘corporate data management’ scheme, including subjects like corporate fraud, early warning systems and utilization of funds mobilized through IPOs, pertains to issues of public importance.

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“This welcome initiative is likely to act as a think tank for MCA to give them inputs on policy making,” said Dandawate. “It is also noteworthy that MCA has a pool of large databases accessible in a lucid manner, which will certainly give authentic inputs for researchers.”

The other subjects for financing research and workshops include investor education and protection, performance of the corporate sector in terms of their contribution to the economy and investment, competition law and practice, corporate debt structure and leveraging, corporate governance, corporate social responsibility, ease of doing business, bankruptcy and issues relating to producer companies.