DECEMBER 3, 2013 Kroll, the global leader in risk mitigation and response and BMR Advisors, a leading professional services firm in India, announced a strategic alliance to offer clients best-in-class, comprehensive, and independent solutions in the areas of investigations and due diligence. In India, the Kroll-BMR strategic alliance will combine Kroll’s unique ability to gather primary source information from internal and external sources with BMR’s experience in analyzing internal financial records. Whether a company is conducting an investigation or evaluating an investment opportunity, this holistic approach of combining internal and external evidence will provide clients vastly greater accuracy of information while maintaining the independence of the investigative process.
Reshmi Khurana, Managing Director and Kroll India’s country head said: “In India, companies cannot rely on the financial information that employees, vendors and investment targets provide them since corporate governance standards in India are still evolving and accounting and auditing standards have not fully matured. This allows employees, vendors and companies to take advantage of the poor control environment to manipulate financial information.“
Sanjay Mehta, Partner and Leader, Risk Advisory Practise, BMR Advisors, said: “The internal and external review elements are only valuable if there are no conflicts of interest amongst the due diligence providers and investigators and the sanctity of the investigation is maintained. Both Kroll and BMR are independent. This puts both companies in a position to conduct due diligence and investigations on a no-compromise basis which results in truly independent advice“.
According to Kroll’s 2013 Global Fraud Survey, many respondents confirmed that India possesses a multi-faceted fraud problem, with seven different frauds affecting more than 15% of respondents in India. Of the companies surveyed, 33% of them reported an above average incidence of theft of physical assets, 24% were prone to widespread corruption, 22% had incidences of internal financial fraud. India also had an above average percentage of information theft, with 24% of companies reporting such incidences.
In Kroll’s and BMR’s experience, the Indian private equity industry faces unique fraud related challenges. At Kroll, there are has been a 50% increase between 2012 and 2013 in fraud related investigations of portfolio companies of private equity firms. In all the cases, the investors held minority positions in the companies and did not have access to good quality information on their true performance. The goal of these investigations was to understand if the stress in the portfolio company was due to business factors or due to fraud. If Kroll’s investigation identified indications of fraud, then the goal was to understand the modus operandi of the perpetrators. The information gathered in the course of the investigation helped the private equity fund understand if the portfolio company can be brought back on track through negotiations with the promoter and if it cannot be brought back on track, then to determine the legal options the fund can pursue in light of the information available through the investigation.
Kroll and BMR have helped several private equity funds conduct comprehensive due diligence on investment targets and have investigated fraud in portfolio companies. The areas where Kroll and BMR have seen the biggest increase in fraud related investigations in the private equity industry are: (1) export oriented industries where the customers of the portfolio companies are based abroad and it is difficult for PE funds to identify conflicts of interest; (2) businesses that are not generating sufficient cash despite growing top and bottom lines; (3) businesses that rely on government approvals and are dependent on cash transactions such as real estate and infrastructure.
Reshmi Khurana, Managing Director and Kroll India’s country head said: “The slowdown in the market has increased the pressure on portfolio companies to meet the covenants set by the private equity investors and this contributes to PE-promoter conflicts. Secondly, private equity capital is still treated as one more source of capital by promoters, as opposed to a strategic partnership. These factors, besides the evolving regulatory and corporate governance standards in India, are leading to conflicts and fraud in portfolio companies.”
Kroll, the global leader in risk mitigation and response, delivers a wide range of solutions that span investigations, due diligence, compliance, cyber security and physical security. Clients partner with Kroll for the highest-value intelligence and insight to drive the most confident decisions about protecting their companies, assets and people.
Kroll is recognized for its expertise, with 40 years of experience meeting the demands of dynamic businesses and their environments around the world. Kroll is headquartered in New York with offices in 45 cities across 28 countries. The firm has a multidisciplinary team of nearly 4,000 employees globally.
For more information on Kroll, visit kroll.com.
About BMR Advisors
BMR Advisors (www.bmradvisors.com) is a leading professional services organisation offering a range of Tax, Risk and M&A advisory for businesses of all sizes, at the local, national and international levels. We seek to add value to clients by focusing on solutions that are innovative, yet practical. Our philosophy is to serve clients with customised and sound technical advice, delivered in the context of their business or commercial situation.BMR’s Risk and Advisory practice offers a range of services to global and Indian companies, encompassing financial and operational risk assessment, process institutionalisation, business and financial diligences and regulatory compliance assessment, to help managements take informed decisions. BMR's tax practice is well reputed for its quality tax advisory, policy and dispute resolution competencies and is ranked as a Tier 1 firm. Internationally, BMR is co-founder of Taxand- the world’s largest independent tax organization (www.taxand.com). The firm’s M&A practice is member of the Translink network (www.translink-int.com) an independent partnership dedicated to corporate finance advisory services. It is ranked as one of the most active transaction advisor by Bloomberg, Thomson Reuters, Mergermarket and Venture Intelligence.
The firm has over 450 professionals and offices in Bengaluru, Chennai New Delhi, Mumbai, Pune and Singapore.
Tel: +65 96488742