Vidya Rajarao- Founder, Fraudopedia & An Agent of Change
“Independent Directors as Voices of Change- Interview 1”
From Executive Director/Partner at PwC to Partner at Grant Thornton India, to Founder of Fraudopedia & Independent Director, Vidya has traveled far. She has become an Indian icon for fraud investigation & forensic accounting and a strong Voice of Change as an Independent Director. Our team spoke to her recently on corporate governance and independent directorship. Here are the excerpts from the interview:-
1) You have been a board member / independent director. How can independent directors improve corporate governance practices? Please share an example if possible
Vidya Rajarao- Independent Directors are instrumental in establishing effective business strategies, overseeing execution, and enabling a positive compliance culture and tone at the top of a Company. Independent Directors should and can:
- Provide effective oversight of strategic decisions and initiatives proposed by the CEO and the management team by challenging such decisions, seeking additional inputs or clarifications and expert advice where applicable so that decisions are made in the best interest of the Company;
- Establish and monitor appropriate levels of remuneration to the c-suite and KMP;
- Appoint and review findings of the independent or statutory auditor and ensure that the Company complies with relevant accounting standards and practices;
- Review and provide inputs on internal control environment, policies, and procedures with the internal auditor;
- Ensure that any adverse findings from either internal audit or external audit are corrected as soon as possible; and
- Establish, monitor, and oversee the compliance and risk management framework at the Company.
In essence, the Independent Directors should ensure that the Company operates ethically and complies with all laws and regulations, accounting policies, standards, policies, and practices.
Several examples come to mind but one that I can highlight is the review of related party transactions between the CEO or KMP of a Company and other individuals who are related. Independent Directors should review the related party transactions every quarter, seek the necessary information from both the Company and its auditors, conduct additional inquiries as they see fit, and ensure that the related party transactions comply with the provisions of the Companies Act.
Another example is culture. Independent Directors should ensure that the Company has an open and ethical culture and one way to do that is to ensure that the company has a strong whistle-blowing mechanism enabling reporting of issues directly to the Board or a sub-committee of the Board.
2) You are a respected figure in fraud investigation and forensic accounting. Please share your contributions as a senior leader/board member in the domain.
Vidya Rajarao- When I commenced my professional career, forensic accounting and fraud investigations in India were in their infancy. Today, it has become commonplace and in fact, mandated by regulation.
I am fortunate to have learned the skill of forensic accounting and investigations from several mentors and leaders in the US. In addition to being a forensic investigation specialist, I apply forensic skills in the context of a dispute (both domestic and international) and act as an expert witness in arbitration matters.
In 2017, it was an honour to be the first Indian to be elected to the Board of Regents of the Association of Certified Fraud Examiners (ACFE), USA the world’s largest anti-fraud organization, and served as the Vice Chair of the Board of Regents of the ACFE. Along with my fellow Regents and CFE’s in India and around the world, we continue our fight against fraud, corruption and embezzlement.
As a member of the Board and Chair, of the Audit Committee, I ensured that the Board and the Company focused on working capital management, especially, payments to suppliers including MSME’s on time. Further, cash flow management and review of working capital was an area of special focus at every Audit Committee, and relentless focus on cash proved to be critical, especially during the pandemic. Further, given my expertise in accounting, I reviewed the accounting policies of the Company, formulated the internal audit plan on an annual basis in consultation with other members of the Board and management, ensured that the statutory audit is completed timely, and reviewed the findings of both internal and external audit.
Further, along with other members of the Board, I reviewed the fraud risk and enterprise risk management framework with particular attention to policies and new legislation such as payments to MSME, GST compliance, whistle-blower complaints, safety reports, delays in statutory payments etc.
Finally, I have immense pride in creating the next generation of forensic accounting and fraud investigation professionals in India — professionals who I recruited, trained and mentored and are now at the forefront of the forensic accounting practice at several consulting firms and companies in India.
3) How can overall board governance and board leadership be enhanced in the Indian corporate world?
Vidya Rajarao- Board governance and board leadership in India can be enhanced in India through accountability, transparency, and disclosure.
The Board must hold itself and the Company accountable –in spirit, intent, and action. Mere lip service to governance is unhelpful and the Board must be seen as challenging decisions of dominant CEO’s or promoters with significant equity or holdings. The Board should exercise its independence and desist from approving transactions that do not benefit the Company at large.
Transparency in dealings with third parties is critical and the Board must set the tone for ethical dealings with third parties including vendors, customers, regulators, and investors. The Board must establish and monitor an appropriate framework for ESG compliance and in particular, have a robust whistle-blowing mechanism in place for everyone (including third parties) to seek clarifications or report issues of self-dealing, conflicts of interest etc.
Finally, the Board (or the Audit Committee) should take a leadership role in challenging external auditors and set a high bar for compliance and disclosure and a low tolerance for any lapses in governance.
Connect with Vidya on LinkedIn
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