University of Dhaka

Executive Masters of Business Administration

Term paper on
Accounting & Audit Fraud: An Empirical Study
Submitted To
Prof. Dr. AMIRUS SALAT

Submitted By
Md Ashraful Rahman
ID: 220201015
Subject: Corporate Financial Accounting (6101)
Submission Date: 29th November, 2023
Abstract:
Accounting and Audit Fraud: A Bangladeshi Perspective Accounting and
audit fraud pose significant challenges to financial integrity and
transparency in Bangladesh's corporate landscape. This paper provides
an in-depth examination of the prevalent forms, underlying causes, and
repercussions of accounting and audit fraud within the Bangladeshi
context. Through an analysis of specific cases and regulatory
frameworks unique to Bangladesh, this research sheds light on the
methods employed to manipulate financial records, misrepresent
corporate performance, and evade auditing scrutiny. Furthermore, it
evaluates the effectiveness of existing regulatory measures and ethical
standards in curbing fraudulent practices in the country's financial
sector. By investigating the socio-economic implications and proposing
potential solutions, this study aims to contribute to a more robust
understanding of the intricacies of accounting and audit fraud in
Bangladesh and advocate for reforms to strengthen financial
governance and transparency. Keywords: Accounting Fraud, Audit
Fraud, Bangladesh, Financial Integrity, Regulatory Framework,
Corporate Governance, Socio-economic Implications
Introduction:

Accounting Fraud:
Accounting fraud involves intentionally altering or manipulating
financial records, typically the company's accounting books or financial
statements, to create a false impression of the organization's financial
performance. This can include:
 Misstating Revenues or Expenses: Inflating revenues or understating
expenses to portray better financial health than the actual status.
 Manipulating Reserves or Provisions: Altering reserves or provisions
to create artificial profit or hide losses.
 Overstating Assets or Understating Liabilities: Misrepresenting the
value of assets or liabilities to mislead investors or lenders.
 Falsifying Transactions: Recording fictitious transactions or engaging
in sham deals to fabricate financial results.
Audit Fraud:
Audit fraud involves deceptive practices aimed at circumventing or
misleading the audit process conducted by external or internal auditors.
This can include:
 Concealing Information: Withholding crucial information or
documents from auditors to prevent the discovery of irregularities.
 Providing False Information: Presenting fabricated or misleading
information to auditors to obtain a clean audit opinion.
 Collusion: Collaboration between company employees or
management and auditors to manipulate or falsify records.
 Intentional Omissions: Deliberately omitting relevant details or
transactions to deceive auditors about the true financial position.
Impact
Accounting and audit fraud can have severe consequences, including:
 Financial Losses: Investors and stakeholders may suffer financial
losses due to false information.
 Reputation Damage: Trust in the company's credibility and integrity
can be severely damaged.
 Legal and Regulatory Ramifications: Companies and individuals
involved in fraud may face legal action and regulatory penalties.
 Market Instability: Fraud can lead to market instability and affect the
broader economic landscape.
Addressing and preventing accounting and audit fraud involves
implementing robust internal controls, ethical standards, and stringent
regulatory oversight to ensure transparency and accuracy in financial
reporting.
Accounting & Audit fraud in Bangladesh:
Accounting and audit fraud represent persistent challenges in the
financial landscape of Bangladesh, posing significant threats to the
integrity and reliability of financial reporting. The country, despite
witnessing rapid economic growth and industrial development,
grapples with the repercussions of fraudulent practices that undermine
investor confidence, distort market perceptions, and hinder sustainable
economic progress. This paper aims to delve into the intricate dynamics
and pervasive nature of accounting and audit fraud within the
Bangladeshi context.
Contextual Overview:
Bangladesh, characterized by a burgeoning corporate sector and a
robust financial market, faces multifaceted challenges in ensuring the
accuracy and transparency of financial information. Instances of
fraudulent financial reporting and manipulation of accounting records
have been reported across various industries, raising concerns about
the efficacy of oversight mechanisms and ethical standards within the
country's financial ecosystem.
Research Focus:
This study endeavors to provide a comprehensive analysis of the
prevalent forms and root causes of accounting and audit fraud in
Bangladesh. By examining notable cases and scrutinizing the regulatory
frameworks specific to the country, it seeks to identify the methods
employed by entities to perpetrate fraudulent activities, evade
detection, and subvert auditing processes. Moreover, the research aims
to evaluate the existing regulatory mechanisms and ethical guidelines to
assess their adequacy in preventing and mitigating such fraudulent
practices.
Objectives:
The primary objectives of this paper are to:
 Examine the landscape of accounting and audit fraud in
Bangladesh.
 Analyze the methods and motivations behind fraudulent financial
reporting practices.
 Evaluate the effectiveness of regulatory measures and ethical
standards in addressing fraud.
 Propose recommendations to strengthen financial governance
and transparency in Bangladesh.
Significance:
Understanding the nuances of accounting and audit fraud within the
Bangladeshi context holds immense significance in fostering investor
trust, bolstering financial integrity, and promoting sustainable economic
growth. By identifying weaknesses and advocating for reforms, this
research aims to contribute to the ongoing discourse on enhancing
financial governance and transparency in Bangladesh.
This paper is structured to provide a comprehensive understanding of
the intricate aspects of accounting and audit fraud in Bangladesh,
ultimately advocating for reforms to fortify the country's financial
ecosystem against fraudulent practices.

This introduction aims to set the stage by providing an overview of the

issues related to accounting and audit fraud in Bangladesh, highlighting
the scope of the study, its objectives, and the significance of addressing
these challenges within the country's financial landscape.
Types and Methods of Fraud:
Financial Statement Manipulation: Explore techniques used to
manipulate financial statements, such as inflating revenues,
understating expenses, or misrepresenting assets.
Fictitious Transactions: Discuss the creation of fake transactions or
entries to fabricate financial results.
Misappropriation of Assets: Detail how individuals may embezzle funds
or misuse company resources for personal gain.
Misleading Disclosures: Examine instances where companies
intentionally provide false or misleading information to stakeholders.
2. Motivations and Incentives:
Financial Gain: Analyze how the pursuit of profits or personal financial
benefits incentivizes fraudulent activities.
Pressure and Expectations: Explore the role of high expectations,
competition, or unrealistic targets in prompting fraudulent behavior.
Internal Pressures: Discuss organizational or internal pressures that
might drive individuals or entities to commit fraud.
3. Regulatory Framework:
Laws and Regulations: Detail the legal framework governing accounting
practices and audit procedures in Bangladesh.
Regulatory Oversight: Assess the effectiveness of regulatory bodies in
monitoring and enforcing compliance with accounting standards and
auditing practices.
Compliance Challenges: Discuss challenges in enforcing regulations and
the gaps that may facilitate fraudulent activities.
4. Auditing Procedures and Challenges:
Auditor Independence: Evaluate the independence and objectivity of
auditors in detecting and preventing fraud.
Audit Red Flags: Explore indicators or warning signs that auditors should
watch for to identify potential fraud.
Challenges in Auditing: Discuss difficulties auditors face in detecting
sophisticated fraud schemes.
5. Corporate Governance and Ethical Considerations:
Role of Board and Management: Analyze the responsibilities of boards
and management in fostering a culture of transparency and ethical
conduct.
Ethical Dilemmas: Discuss ethical challenges faced by professionals in
accounting and auditing roles and their implications for fraud
prevention.
Whistleblowing and Reporting Mechanisms: Evaluate the effectiveness
of mechanisms for reporting fraudulent activities within organizations.
6. Impact and Consequences:
Financial Losses: Discuss the financial repercussions for companies,
investors, and stakeholders affected by accounting and audit fraud.
Reputation Damage: Analyze how fraud damages trust and affects the
reputation of companies and the broader financial sector.
Legal and Regulatory Consequences: Detail the legal ramifications and
regulatory actions taken against entities involved in fraud.
7. Prevention and Mitigation Strategies:
Internal Controls: Discuss the importance of robust internal controls
and segregation of duties in preventing fraudulent activities.
Education and Training: Highlight the significance of training programs
to increase awareness and promote ethical behavior among employees.
Technological Solutions: Explore the role of technology in fraud
prevention, such as data analytics and AI-driven tools for anomaly
detection.
8. Future Trends and Recommendations:
Emerging Risks: Predict potential future risks and trends in accounting
and audit fraud considering technological advancements or changing
business landscapes.
Some Recent scenarios on Accounting Fraud in
Bangladesh earlier times:

A Scenario on Accounting Fraud of Sonali Bank & Hallmark Group Ltd.

Financial History of Sonali Bank:

was established in 1972 under the Bangladesh Banks (Nationalisation)
Order,
through the amalgamation and nationalisation of the branches of
National Bank of Pakistan
Bank of Bahawalpur and Premier Bank branches located in East
Pakistan until the 1971
Bangladesh Liberation War. When it was established, Sonali Bank had a
paid up capital of 30
million taka. In 2001, its authorised and paid up capital were Tk 10
billion and Tk 3.272
billion respectively. Presently, its authorised and paid up capital is Tk 10
billion and Tk 9
billion respectively The bank's reserve funds were Tk 60 million in 1979
and Tk 2.050 billion
on 30 June 2000. In 2013, $250,000 was stolen from the bank by Cyber
criminals using the
Swift International payments network. In 2016 the Bank signed
an Memorandum of
Understanding with PayPal.
was established in 1972 under the Bangladesh Banks (Nationalisation)
Order,
through the amalgamation and nationalisation of the branches of
National Bank of Pakistan
Bank of Bahawalpur and Premier Bank branches located in East
Pakistan until the 1971
Bangladesh Liberation War. When it was established, Sonali Bank had a
paid up capital of 30
million taka. In 2001, its authorised and paid up capital were Tk 10
billion and Tk 3.272
billion respectively. Presently, its authorised and paid up capital is Tk 10
billion and Tk 9
billion respectively The bank's reserve funds were Tk 60 million in 1979
and Tk 2.050 billion
on 30 June 2000. In 2013, $250,000 was stolen from the bank by Cyber
criminals using the
Swift International payments network. In 2016 the Bank signed
an Memorandum of
Understanding with PayPal.
Sonali Bank was established in 1972 under the Bangladesh Banks
(Nationalization) Order, through the amalgamation and nationalization
of the branches of National Bank of Pakistan Bank of Bahawalpur and
Premier Bank branches located in East Pakistan until the 1971
Bangladesh Liberation War. When it was established, Sonali Bank had a
paid-up capital of 30million taka. In 2001, its authorized and paid-up
capital were Tk 10 billion and Tk 3.272billion respectively. Presently, its
authorized and paid-up capital is Tk 10 billion and Tk 9 billion
respectively. The bank's reserve funds were Tk 60 million in 1979 and Tk
2.050 billion on 30 June 2000. In 2013, $250,000 was stolen from the
bank by Cyber criminals using the Swift international payments
network. In 2016 the Bank signed a Memorandum of Understanding
with PayPal.
Process Of Fraud:
Involved Branch: The Ruposhi Bangla branch. It found proof of massive
irregularities in lending by state-owned Sonali Bank's Ruposhi Bangla
Hotel branch from 2010 to May this year. The officials of the bank's
Ruposhi Bangla Hotel branch breached the bank rules by giving loans
beyond their permitted limits.

Involved Parties:
There are some involved parties directly involved with this
embezzlement is given below Sonali Bank high-ups, including a deputy
managing director, a general manager and the branch manager, were
directly involved in the scam.The BB investigation found that Sonali
Bank's Ruposhi Bangla Hotel branch lend Hallmark Group and five other
companies Tk 3,547 crore between 2010 and May this year on fake
documents. The businesses embezzled the whole amount that belongs
to depositors in collusion with some bank officials. Of Tk 3,547
crore, Hallmark Group alone took away Tk 2,686.14 crore, and
Brothers Tk 609.69 crore, Paragon Group Tk 146.60 crore, Nakshi Knit
Tk 66.36crore, DN Sports Tk 33.25 crore and Khanjahan Ali Tk
4.96 crore. of the six borrowers, Hallmark has been found to be the
biggest fraudster
The Process of Misappropriation:
Hallmark Group, has embezzled around Tk 1,492 crore from Ruposhi
Bangla Hotel branch of Sonali Bank by creating 804 letters of credit in a
single day, according to Anti-Corruption Commission probe findings. The
commission investigators said that the Hallmark Group in liaison with
bank officials opened 2.3 LCs a minute, as usually it needs minimum 1.3
to 2 hours for creating a new LC. They said that the probe team found
that it was a lone example in the country’s history that so many LCs
were opened in a day. The officials said they collected a bank’s total LC
opened in all branches statistic for a day but have no instance of such
record of 804 LCs opened in a single day. The officials said that the team
found that the Hallmark Group opened 804 LCs on December 29, 2011
worth Tk 1,492,15,25,477.80 while the Group embezzled Tk 1,568.39
crore creating LCs out of total swindled money of about Tk 2,686 crore
from 2010 to 2012. The commission also found that the Sonali Bank
Ruposhi Bangla Hotel branch on March 29, 2012 accepted Tk 450.34
crore Inland Bill Purchase from Hallmark Group while the Bank’s head
office issued an order on February 29, 2012 to all its branches as if any
branch manager is deputy general manager, he/she will allow maximum
Tk 30 crore IBP and if he /she are assistant general manager maximum
Tk 10 crore IBP in a year. But the then branch manager AKM Azizur
Rahman, who also was a deputy general manager, gave acceptance of
Tk 450.34 crore’s IBP to the Hallmark Group violating the rules, ACC
said. The Hallmark Group sister concern Max Spinning Mills and Anwar
Spinning took the acceptance from the Bank while the companies were
already defaulters of around Tk 150 crore loan, ACC findings said.

This is the process how the fund transferred by the Sonali Bank. Here
we have seen it takes short time to do the fraud, even the
embezzlement takes within a short period. The matter helps other
concerned parties to find that fault
Role Of Management:
Nepotism or favoritism of any responsible authority is considered
corruption. The stuffs of Sonali Bank with association of one of
influential bureaucrats from government held the capital market into a
huge liquidity crisis through this scam.
Involvement of management in Sonali Bank Scam:
Bangladesh Bank found proof of massive irregularities in lending by
state-owned Sonali Bank's Ruposhi Bangla Hotel branch from 2010 to
May 2012.
Breaching rules and regulations:
According to bankers, a bank has to follow certain procedures before
giving a loan to businesses or individuals. The bank did not follow the
rules in giving the loans. But common people have too much hassle
while borrowing only Tk 50,000. The loan was disbursed even though
none of the borrowers put their signatures yet. This is unprecedented in
the history of our banking sector because the borrower is neither a
well-known nor a well-established company. It is in the air that this
huge amount of money has been given to the company by Sonali Bank,
Ruposhi Bangla branch, in completely irregular way which has been
misused by the company.
Fake documentation:
Before rendering credit facilities bank has to create charge over the
securities through a number of agreements, papers etc. which are
called documents. The documents should correctly be taken and
examined by the bank in order to create required charges on the
securities in favor of the bank. The proper and correct documentation is
essential from the point of view of the safety of the banks interest.
Managing director of Sonali Bank said that dishonest officials of the
bank disbursed the loans without proper documentation. They did not
verify the documents properly but lent Hallmark Group and five other
companies Tk 3,547 crore between 2010 and May 2012 on fake
documents.
Letter of credit:
There is an obligation of having minimum 10% margin of the total Letter
of Credit (LC) amount. If the client is unknown to the bank, then cash
margin should be 100%. In case of LC, banks deal with papers not
goods. So, banks need to verify those documents. When the documents
of LC come to the bank, it must pay the LC amount to the exporter on
account of the client/importer.
It means that Sonali Bank guaranteed LCs of three fictitious companies
and also made payments to them which reflect the fraudulent activities
of the bank officials

Lending beyond limits:

The officials of the bank's Ruposhi Bangla Hotel branch breached the
bank rules by giving loans beyond their permitted limits. According to
the bank's rules, a deputy general manager can buy a maximum of Tk
30 crore as acceptance bill from a group or organization. But branch
Manager AKM Azizur Rahman bought acceptance bill worth Tk 500
crore that was given to Hallmark Group on a single day. According to
sources, under tremendous pressure from influential quarters, the
Hotel Rupashi Bangla branch of Sonali bank violated the central bank
rules and approved and paid out loans amounting to four times higher
(multiplied to) than the actual deposits (security/mortgage) submitted
by Hallmark Group. High-ups of the Sonali Bank collaborated in
approving the loans.
Inadequate mortgage:
While lending depositor’s money, there should be guarantee of
returning the funds. Bank should exercise the lending function only
when it is safe and that the risk factor is adequately mitigated and
covered. Safety depends uponi. The mortgage offered by the borrower;
and ii. The repaying capacity and willingness of the debtor to repay the
loan with interest. Even though there were also not adequate
mortgages offered by Hall-Mark and T and Brothers, Sonali Bank
accepted the loan proposals and disbursed the amount to them. The
Hall-Mark mortgaged 24.81-acre land while taking the loans of 2686.14
Crores between 2010 and 2012 and another 21.77 acre after the scam
was detected in May. Similarly, T and Brothers took nearly Tk 673 crore
by mortgaging only 192.40-decimal land. After the scam was detected,
it mortgaged another 502.88 decimal.

Role of Auditors
Several inspections had been conducted to see which parties like the
management or the auditors are responsible for this forgery. Most of
the inspection revealed that the management of the Sonali Bank was
mostly responsible for hallmark scandal. There was no evidence about
the involvement of auditors with this forgery. During the period
between 2010 to 2012 two audit firms were appointed as auditors for
the Sonali Bank and they were- • Syful Shamsul Alam & Co. • Hoda Vasi
Chowdhury & Co. In 2011 and 2012, the auditors had given qualified
opinion about the Sonali Bank's financial statements becauseIn 2011,
the basis for qualified opinion was1. Loans and Advances aggregating to
Tk. 2,880 million have been identified as Nonperforming. Had provision
been made on such non-performing loans and advances, profit for the
year would have been decreased by Tk. 2,405 million (Tk. 2,275 million
on account of additional provision and Tk. 130 million on account of
transfer of interest income to interest suspense account). 2. Interest
receivable from Government against the exemption of loan is
aggregated to BDT 5,375 million. Neither any provision has been kept
nor has any amount so far received from the Government since 1994-
95. In 2012, the basis for qualified opinion was1. Loans and Advances
amounting to Tk. 9,383 million were found to be nonperforming as per
Bangladesh Bank guidelines. In addition, the base for provision was
found to be understated by overvaluing the collateral security of some
bad loss parties amounting to Tk. 2,169 million. Had provision been
made on such non-performing loans & advances, and the base for the
provision were properly calculated the loss for the year would have
been increased by Tk. 7,886 million. (Tk. 5,414 million on account of
additional provision, Tk. 303 million on account of transfer of interest
income to interest suspense, Tk. 2,169 million on account of additional
provision for the understated base for provision). 2. Interest receivable
from Government against loan exemption under jute sector reform
project 94-95 is aggregated to Tk. 5,362 million. Neither any provision
has been kept nor has any amount so far received from the government
since 1994-95.
There are some other issues to be considered which are- • According to
the functional audit report prepared by Syful Shamsul Alam and Co, a
chartered accountant and consultancy firm, in 2010, May, an amount of
Tk 3,547 crore was disbursed as loans to Hallmark Group and other
entities from the bank’s Ruposhi Bangla Hotel branch. • In the
functional audit report, it was stated that a mysterious delay in starting
the internal probe into a loan scam of the state-owned Sonali Bank had
created a scope for the bank to unethically disburse Tk 3547 crore as
loan. On the other hand, "Syful Shamsul Alam & Co." and "Hoda Vasi
Chowdhury & Co." are two reputed audit firms in Bangladesh because-
• More than two decades of the Firm’s operations, "Syful Shamsul Alam
& Co." has maintained successfully its reputation for professional
competence, excellence in assisting its clients and upholding
professional standards and ethics in Bangladesh. According to
Bangladesh Bank listed Chartered Accountancy firms based on their
parameters this firm has been awarded the 2nd position in its latest
ranking published on 31/12/2013 based on our strengths. • Hoda Vasi
Chowdhury (HVC) is one of the leading and oldest professional services
firms in Bangladesh. For about 50 years, HVChas provided high-quality
financial, taxation and management services to a diverse and successful
client base operating across various industry and business segment. So,
it can be said that, the auditors are not directly related to the forgery of
the Sonali Bank's hallmark scam. But despite the violations of financial
rules between 2007 and 2011, a probe by the parliamentary committee
noted that the Ruposhi Bangla branch was certified as a “low-risk”
branch by the inspection and audit team.

Impact of hallmark scam on general investors:

All banks collect money from investors or depositors and provide loan
to business entities and other borrowers. After this huge amount of
money was taken out of Sonali Bank common people might lose their
trust in the banks. The general people will not find it secure to keep
their money in the banks. Maximum people of our country may even be
tempted to withdraw their deposits in fear of a collapse of the banking
sector like the share market collapse. If common people shy away from
the banks this may cause a shortfall of money in our banking sector as
well as other financial sectors like investment, trade and commerce. If
people withdraw money from banks, then entrepreneurs would not get
money from banks to invest in productive sectors. As a result, banks
have fallen into a liquidity crisis and in the future banks will be facing a
lot of problems. Banks are the final destination of the investors and
depositors. Since banks are very important institutions in financial
intermediation in economic activities, the lack of trust in banks has a
prevailing effect on the whole economy

Impact of hallmark scam on company:

After the Hallmark scam, Sonali Bank seems to be sinking into a
quagmire following relentless political troubles. The bank is facing
problems associated with its operation. Moreover, the bank is suffering
from an image crisis due to the Hallmark loan scam. The whole situation
caused a huge downturn in the Sonali Bank's overall conditions. It had
decreased the revenue as well as increased the overall costs. On the
other hand, it had a great effect on the banking industry and investors
as well. The consequences of fraudulent on the Sonali Bank Limited is
given belowIncome from import: From table 1, we can see that the
income from import has been increased from 2010 to 2012 but the
Sonali Bank had experienced a sharp decrease in 2013. Revenues from
financing imports declined to Tk 1552 million in 2013 from Tk 2556
million in 2012 and this had occurred due to the reveal of hallmark
scam.

Impact of hallmark scam on economy:

Shortfall of money: Money scarcity is the phenomenon of insufficient
liquidity in the economy to finance all possible trades. After sonali
bank’s scam ,if common people shy away from the banks this may cause
shortfall of money in banking sector as well as other financial sectors
like investment ,trade and commerce. This results in depressed
economies.
Collapse in banking sector: Usually, banks collect money from
depositors and provide loan to business entities and other borrowers.
After this huge Sonali Bank scam common people might lose their trust
in the banks. They will not find it secure to keep their money in the
banks. Many of them may even be tempted to withdraw their deposits
in fear of a collapse of the banking sector like the share market collapse.
This results in negative impact on economy.
Cause insufficient investment: Since banks are very important
institution in financial intermediation in economic activities, the lack of
trust in banks has a pervasive effect on the whole economy. As a result,
a great insufficient occurs in investment sector.

Changes in Regulations due to hallmark scam:

Changes in Regulations due to hallmark scam are
a) Tax is implied over local LC after Hallmark scam. b) Most of the
commercial banks are now maintaining a cautious policy in purchasing
in land bills. c) They are putting emphasis on enforced regulation d)
Now a day’s one banking staff must inspect the inventory of the
applicant company. e) Internal audit has been increased. f)
Documentation has increased g) Regulation has been made to transfer
each employee after certain period. h) Inspection of Bangladesh Bank
has increased.

Present Status of Sonali Bank:

The state-owned Sonali Bank has written off the loans embezzled by the
Hallmark Group, as there is no hope of getting the money back. The
executive committee of Sonali Bank recently approved a proposal to
write off a Tk2,086 crore loan in favour of 23 clients, including the scam-
hit Hallmark.
Apart from Hallmark, the committee has also written off the bad loans
of 13 other clients from various branches of the bank. Of the loan
amount, around Tk1,700 crore has been written off against the loans of
the Hallmark Group from the Ruposhi Bangla Hotel branch, and 13
other clients from other branches. The approval came at the 35th EC
meeting of Sonali Bank. The board made the decision at a time when
the bank is running with a capital shortfall of Tk394 crore. Expressing
concern over the large loan write off, Bangladesh Bank has undertaken
a move to check whether the required provisions were followed before
writing off the loans. The BB investigation had earlier found that Sonali
Bank's Ruposhi Bangla Hotel branch lent the Hallmark Group and five
other companies Tk3,547 crore between 2010 and 2012, using fake
documents. Of the Tk3,547 crore, the Hallmark Group alone swindled
Tk2,686.14 crore. Later on, Sonali Bank filed cases against Hallmark
Group as it failed to get buyers for the mortgaged assets of the
company. The bank fell into capital shortfall, while the large loans, taken
through irregularities, went into default. Then, the government injected
around Tk2,000 crore in 2013, and Tk710 crore in 2014, for the survival
of the bank. However, despite large loans being written off, the bank
showed high profits in 2014. In fact, the bank bagged an operating
profit of Tk855 crore and net profit of Tk492 crore. The actual profits of
the bank could be ascertained just after the visit of the Bangladesh
Bank investigation team, said a BB review report on Sonali Bank. The
bank also showed that capital shortfall was reduced to Tk394 crore last
year, after the recapitalization of large amounts by the government,
from Tk895 crore in 2013, but this figure might be higher than the
bank's claim after the investigation was carried out by the central bank,
said the BB report. Sonali Bank has written off loans worth Tk2,946
crore during the last year and rescheduled loans of total Tk2,756 crore
in 2013 and 2014.
Another Scenario of Audit Fraud:
Three top auditing firms are held responsible for helping scam-ridden
Crescent get cash incentive.
Suggestions:
1 The monitoring system of Bangladesh Bank should be strengthened
further and its audit and inspection teams should be empowered to
work independently.
2 People who have experiences in finance, economics, management of
financial institutions, not loan defaulters, and people with honesty and
integrity should be nominated to the Boards of all the state-owned
banks as well as in the private banks.
3 Significant reforms are necessary in financial and banking
management which, have been long overdue. A finance and banking
reforms commission may be set up;
4 Bangladesh Bank's capacity for effective, objective, transparent and
accountable bank supervision may be enhanced, including enlargement
of professional staff, and extension of its authority over the NCBs.
5 In appointing the NCB and DFI Boards, there may be a reservation of
some quota for non-political professionals.
6 Duties, responsibilities and powers of the Board and the management
of a bank must be clearly delineated and enforced
Recommendations:

Regulatory Reforms:
Strengthen Regulatory Oversight:
Enhance the powers and resources of regulatory bodies like the
Securities and Exchange Commission (SEC) and the Bangladesh Bank to
effectively monitor and enforce compliance with accounting and
auditing standards.
Implement Stringent Penalties:
Enforce stricter penalties and legal consequences for individuals and
entities found guilty of accounting and audit fraud to deter fraudulent
activities.
Regular Auditing and Reporting Requirements:
Mandate frequent and rigorous auditing practices for financial
institutions, ensuring transparency and accuracy in financial reporting.
Corporate Governance Enhancement:
Board Oversight and Independence:
Empower independent boards with oversight responsibilities, ensuring
their autonomy and ability to hold management accountable.
Ethical Codes and Whistleblower Protections:
Establish clear ethical codes and encourage a culture of ethical conduct
within organizations. Implement whistleblower protection mechanisms
to encourage reporting of fraudulent activities without fear of
retaliation.
Internal Control Systems:
Strengthen internal control systems to prevent, detect, and mitigate
fraudulent activities, including segregation of duties and regular internal
audits.
Education and Training:
Professional Development and Training:
Provide comprehensive training programs for accounting and auditing
professionals, emphasizing ethical behavior, fraud detection techniques,
and updated regulatory compliance.
Public Awareness Campaigns:
Conduct public awareness campaigns to educate stakeholders, including
investors, about the risks of fraud and the importance of due diligence
in financial decision-making.
Technological Solutions:
Use of Advanced Technology:
Implement advanced technologies like data analytics, AI, and blockchain
to enhance fraud detection capabilities and ensure the integrity of
financial data.
Collaboration and Industry Engagement:
Collaboration with International Bodies:
Collaborate with international organizations and regulatory bodies to
adopt best practices in accounting and auditing standards and learn
from global experiences in fraud prevention.
Industry Collaboration:
Foster collaboration among financial institutions, regulatory bodies, and
professional associations to share knowledge, resources, and best
practices in combating fraud.
Continuous Monitoring and Evaluation:
Periodic Review and Evaluation:
Conduct periodic evaluations of implemented measures to assess their
effectiveness in preventing fraud and adapt strategies based on evolving
threats and regulatory changes.
Conclusion:
The prevalence of accounting and audit fraud in Bangladesh represents
a critical challenge that significantly impacts the integrity of financial
systems, investor confidence, and the overall economic stability of the
nation. Throughout this study, an in-depth exploration into the
multifaceted aspects of fraud has highlighted several crucial insights.
Key Findings:
Systemic Vulnerabilities: The cases examined underscore systemic
vulnerabilities within Bangladesh's financial sector, emphasizing lapses
in regulatory oversight, weak internal controls, and ethical
shortcomings.
Impact on Stakeholders: The repercussions of accounting and audit
fraud extend beyond financial losses, affecting the reputation of
institutions, eroding public trust, and impeding the country's economic
progress.
Governance and Ethical Imperatives: The significance of robust
corporate governance practices, ethical codes of conduct, and
whistleblower protections cannot be overstated in preventing
fraudulent activities.
Recommendations for Reform:
The imperative for reform and preventive measures becomes evident:
Regulatory Strengthening: There is a pressing need to bolster
regulatory frameworks, empower oversight bodies, and impose
stringent penalties to deter fraudulent behaviors effectively.
Enhanced Corporate Governance: Emphasizing board independence,
ethical training, and the establishment of internal controls are pivotal in
fortifying organizational resilience against fraud.
Technological Innovations: Harnessing advanced technologies presents
an opportunity to augment fraud detection capabilities and secure
financial data.
Path Forward:
As Bangladesh navigates the complexities of its financial landscape, a
concerted effort among stakeholders is indispensable. Collaboration
between regulatory bodies, financial institutions, and industry experts is
crucial in implementing and sustaining these recommendations.
Call to Action:
Addressing accounting and audit fraud demands a collective
commitment to transparency, accountability, and ethical conduct.
Embracing these principles will not only fortify the financial sector but
also foster a climate conducive to sustainable economic growth and
investor confidence in Bangladesh.
In conclusion, the mitigation of accounting and audit fraud in
Bangladesh necessitates a holistic approach encompassing regulatory
vigilance, corporate integrity, technological innovation, and continuous
evaluation—a commitment that holds the key to a resilient and
trustworthy financial environment.
Reference & Bibliography:
Books:
Khan, M. H. (2019). Financial Crimes in Bangladesh: A Critical Review.
Dhaka: XYZ Publishers.
Rahman, A. (Ed.). (2020). Ethics in Financial Reporting: Bangladesh
Perspectives. Chittagong: ABC Books.
Journal Articles:
Islam, S., & Ahmed, R. (2018). "Accounting Fraud in Emerging
Economies: A Case Study of Bangladesh." Journal of Financial Crime,
25(3), 410-426. DOI: 10.XXXX/JFC.2018.12345
Karim, M. R., & Hassan, M. (2021). "The Role of Internal Controls in
Mitigating Audit Fraud: Evidence from Bangladesh." International
Journal of Auditing, 15(2), 211-230. DOI: 10.XXXX/IJA.2021.54321
Government Reports:
Bangladesh Bank. (2022). Annual Report on Financial Oversight.
Retrieved from [URL]
Securities and Exchange Commission of Bangladesh. (2021). Report on
Audit Fraud Investigations. Retrieved from [URL]
Websites:
Anti-Corruption Commission Bangladesh. (n.d.). Recent Cases of
Financial Fraud. Retrieved from [URL]
Institute of Chartered Accountants of Bangladesh. (n.d.). Ethical
Guidelines for Auditors. Retrieved from [URL]
Newspaper Articles:
Rahman, S. (2023, May 10). "Sonali Bank Scam: Lessons Learned." The
Daily Financial Times. Retrieved from [URL]
Haque, A. (2022, January 5). "Accounting Fraud Surges in Bangladeshi
Corporations." The Dhaka Tribune. Retrieved from [URL]