Fraud Risk Management in Ancient India

Presently, the Serious Fraud Investigation Office of India lacks sufficient powers to initiate investigations and prosecute. The Central Bureau of Intelligence isn’t independent due to which politicians escape prosecution for corruption and money laundering. Indian police force Economic Crime wing doesn’t have expertise in dealing with electronic and financial frauds. The legal system is pathetic and takes a long time to prosecute white-collar criminals. India has a shortfall of trained fraud investigators as it hardly has any courses for students in this line.

All these aspects may make you think that Indians are new to the concept of fraud risk management. This is far from the truth. Kautilya addressed financial fraud risks in 4th century BC and most of the concepts are still used presently. Let me narrate you some of the concepts he formulated in earlier times.

1.      Formation of a Central Investigation Agency

Kautilya proposed a central investigation agency for a kingdom to do espionage work. A network of spies located in different parts of the kingdom reported information to their handlers. The handlers in turn checked the authenticity of the information from three sources and if correct reported to the agency. The spies did not have direct contact with the agency to conceal true identities..

Spy selection depended on character and social position. Spies were recruited from all sections of society. Spies were positioned in all the departments and commercial ventures of the king to ensure that the head of the departments do not abuse their power or cheat the king. Women were considered particularly useful to penetrate wealthy households to get the inside story. In current India, there is a scarcity of female fraud investigators as it now considered a masculine job. However, in ancient India, women investigators and spies were quite common.

2.      Types of Financial Frauds

Kautilya identified 40 ways of embezzlement. Some of them are mentioned below:

  • Overpricing and under-pricing of goods
  • Incorrect recording of quantity of raw material and other stocks
  • Misappropriation of funds
  • Teaming and lading
  • Misrepresentation of sources of income
  • Incorrect recording of debtors and creditors
  • Incorrect valuing and distribution of gifts
  • Inconsistency in donations and distributions for charity
  • Misappropriating goods during barter exchange
  • Manipulating weights and tools for measurement
  • Misrepresentation of test marks or the standard of fineness (of gold and silver)

It is interesting to note that Kautilya mentioned most of the frauds that occur in accounting and preparation of financial statements. It shows human psychology has remained the same. However, in India the value system has deteriorated that has resulted in increased fraud and corruption. In olden times, the value of honour was held high. For example, the prime thought in Hindi was – “prann jiye pur vachan na jiye.” (meaning – it is better to lose one’s life rather than go back on a verbal promise given)

3.      Mechanism for Investigation and Punishment

The investigation process was quite similar to the current process followed. Information was initially gathered regarding the fraud from informants, spies, whistle blowers and audits. Background information of the suspects was gathered by sending spies to their residence and business premises.

Subsequently, the people involved, the suspects and witnesses were interrogated. Kautilya suggested separately examining ” the treasurer (nidháyaka), the prescriber (nibandhaka), the receiver (pratigráhaka), the payer (dáyaka), the person who caused the payment (dápaka), the ministerial servants of the officer (mantri-vaiyávrityakara)” for financial frauds. If any person lied, s/he received the same punishment as the main culprit.

Another fascinating aspect is that India doesn’t not have any law similar to the whistle blower provisions of Dodd Frank Act. However, Kautilya proposed –  “Any informant (súchaka) who supplies information about embezzlement just under perpetration shall, if he succeeds in proving it, get as reward one-sixth of the amount in question; if he happens to be a government servant (bhritaka), he shall get for the same act one-twelfth of the amount.”

The punishment for fraud depended on the nature and value of fraud. It ranged from nominal fines to death penalty. The victim was compensated for the losses suffered.

Closing Thoughts

The processes proposed by Kautilya for fraud detection were followed even until the Moghul rule. However, these were dismantled during the time of British Rule as the Indian Penal Code was formulated.  The difference between Mogul rule was that Moguls settled in India, marriages took place between Indian royalty and Mogul rulers and the culture got integrated over time.

The British came to rule for economic purposes. They wished to take advantage of India’s natural resources and vibrant economy. They levied their own rules and did not integrate them with the Indian culture. Hence, over time the Indian value system was lost or kept for namesake only. Overtime, as even after independence the British education system was used, a split ethical value system developed between personal values and business ethics. Therefore, corruption increased in the business environment till it became all-pervasive in the society. It is going to take a lot of effort to change the system now. No short-term solutions  will work.

Accounting and Auditing in Ancient India

Professionals want to know the origin of their profession, the work done in olden times and the level of knowledge. I thought of sharing with you the history of Indian accounting and auditing profession. I discovered in Kautilya’s Arthshastra that it existed in ancient India in 4th century BC. Therefore, my guess is that it would have originated at least a few centuries earlier.  The accounting principles and standards used in the present century are similar to those that existed in the 4th century BC. This nugget of information may have surprised you.

Broadly, Kautilya’s Arthshastra covers accounting principles and standards, role and responsibilities of accountants and auditors, the methodology of accounting, auditing and fraud risk management, and the role of ethics in managing financial activities. Let me share some of the concepts with you in the next couple of posts.

1.     Maintenance of Accounts

The accounting financial year was fixed to July-June period and with a full process for closure of accounts and audit of the same. It covered the method of consolidating the accounts from various departments of the government to assess the net income and loss. The accountants were required to furnish the completed annual accounts to the head office mid-July. Delay and/or failure to do so attracted financial penalties.

 2.  Classification of Receipts

 Kautilya states thatreceipts may be (1) current, (2) last balance, and (3) accidental (anyajátah= received from external source).” In it, he differentiates between cash receipts and debtors, current and accrued income, income from other sources, windfall gains, and recovery of bad debts. He recognized the concept of risk and suggested different rate of interests for loans. Foreign trade loan attracted the highest interest, as the returns were uncertain.

3. Classification of Expenditure

Expenditure classification was similar to receipts classification and included the differentiation between capital expenditure and revenue expenses. Kautilya described it as – “Expenditure is of two kinds—daily expenditure and profitable expenditure.” The difference between income and expenditure was termed as “net balance”. He insisted on making long-term investments in construction and other works as these would generate profits over a period. It also entailed keeping track of work in progress.

4. Role and responsibility of accountants

A hierarchical organization structure of senior to junior accountants existed within the king’s treasury function. The accountants maintained books of accounts on an annual basis according to prescribed standards. The same were furnished for audit at year-end. Kautilya suggested good salaries to accountants and auditors as high income would keep them ethical. Accountants would be more prone to commit fraud if they earned very little.

5.     Segregation of Roles of Treasury and Auditor

The fascinating part of Kautilya’s approach was that he recognized conflict of interest between finance and auditing functions. He categorically stated that the head of finance and head of audit should independently and separately report to the king. He recognized the possibility of collision between the two. In India, in the government the Comptroller General of Audit and Ministry of Finance are two separate functions. However, in the corporate world still in quite a few companies chief audit executive are reporting to chief financial officer rather than the chief executive officer.

6.     Building an Ethical Culture

Kautilya believed character reflected personal values of individual and ethical values learning must commence from childhood. Even as an adult ethical conduct was as important as professional skills. He proposed measures to build ethical climate in the kingdom. However, he was practical and recognized the potential of corruption. In accounting, he talked about misstating financial statements due to abuse of power and fraudulent reporting. He devised a system of reward and punishment to ensure compliance to rules and regulations.

7.     Verification and Auditing of Accounts

The concept of continuous monitoring, periodical auditing, verification and vouching existed in ancient times. Checks were done daily and periodically (five nights, pakshás, months, four-months, and the year). The attributes used in the present day for verifying income and payment vouchers were also used in earlier times. Interestingly, each department had spies to provide information and report wrongdoing to the seniors. There was a full process for discovering fraudulent transactions and punishing accountants for misstating financial statements. I shall cover that in the next post.

Closing Thoughts

Kautilya prescribed the accounting theory that included bookkeeping, preparation of financial statements, auditing and fraud risk management. He considered accounting as an integral part of economics. Various kingdoms in India used his work until the 15th century AD i.e. before the colonial rule. I am not aware whether similar level of knowledge existed in other parts of the world before the Christian era. If you do have information, please share it with me. It will be an enthralling journey into the past.

References:

Kautilya’s Arthshastra 

Employee Selection and Background Screening in Ancient India

Would it be fair to assume most of us believe that employee selection and background screening processes were formed in the 20th century? Do you think soft skill evaluation of employees is the latest management mantra? Will it come as a surprise that in India these were formed in 4th Century BC?

Kautilya’s Arthshastra, written in 4th  century BC, lays down rigorous process for selection and background screening for ministers, priests and government employees. It is more extensive than that employed in the present-day corporate world. I am doing a comparison of the two below. After reading, tell me whether we have progressed or deteriorated in 25 centuries.

1.      Selection Process

Let us first see the qualities senior level people require according to Kautilya:

“Native, born of high family, influential, well trained in arts, possessed of foresight, wise, of strong memory, bold, eloquent, skilful, intelligent, possessed of enthusiasm, dignity, and endurance, pure in character, affable, firm in loyal devotion, endowed with excellent conduct, strength, health and bravery, free from procrastination and fickle mindedness, affectionate, and free from such qualities as excite hatred and enmity–these are the qualifications of a ministerial officer (amátyasampat).”

If you look at them, he covers intelligence, professional capability, personal character, strategic thinking, emotional intelligence, social and business connections, soft skills and physical fitness. In the 21st century words and terminologies are different, but attributes are the same. Hence, not much change.

2. Background Verification Process

Now I am giving a table below comparing the two period’s process of background verification. For detailed methodology of the current period refer to my article – Pre-employment Background Verification.

Background screening

Doesn’t it make you think? Over 25 centuries, the basic concept and process of selection and background verification has remained more or less the same. However, Kautilya’s selection process doesn’t stop here. He mentions a few additional processes and I am amazed at the insight.

3. Detailed Character Verification

In the Arthshastra, Kautilya asks to ascertain the character of employees by offering temptations and instigating them against the king. Senior level ministers and priests should attempt to lure the employee to test him for four allurements- religious, monetary, love and fear. He suggests creating situations to test whether the employee will defy the king for the sake of religion, money, sex or under threat. Then he states, that whosoever is lured by a certain aspect, should not be in-charge of it. For example, if someone fails the test of monetary allurement, he should not be responsible for managing finance. The tests were conducted to ensure that people in critical positions were incorruptible.

In present times, we select senior managers on various aspects but their loyalty and character aren’t as thoroughly checked as in the ancient times. In my view, quite a significant number will fail Kautilya’s tests for “purity of character”. How many CEOs check whether their direct reports will betray them for bribes and rewards?

Closing thoughts

In India, around 25% candidates submit false or inaccurate resumes. The background screening processes aren’t fully established in most of the organizations. With high risks of hiring terrorists, hackers and fraudsters the organizations are susceptible to financial, legal and reputation risks. Isn’t it surprising that even after 25 centuries the process and procedures aren’t fully implemented.

We now say we are living in a fast changing world. So, do you think background-screening processes will become efficient in this century, if they haven’t changed in 25 centuries?

Indian Attitude Towards Time – A Strength In Future

We Indians jokingly refer arriving late for a meeting as arriving ISD (Indian Standard Time). However, if you, my reader, are an Indian, you would have heard a question from a western colleague – “Why are Indians late for meetings?” If you are a westerner, you desperately want to know the answer to bring your stress down and figure out whether the Indians actually want to do business with you. However, whether you are an Indian or a westerner, have you ever thought of Indian attitude to time as a strength in the future chaotic world?

Let me delve into a little bit of detail before I answer that. The attitude towards time divides people into two cultures – monochronic people and polychronic people. According to Wikipedia the definitions are:

Monochronic – A monochronic time system, people do things one at a time and segment time into precise, small units. Under this system, time is scheduled, arranged and managed.

Polychronic – In polychronic time system, people do several things simultaneously, and take a more fluid approach to scheduling time.

Indians follow the polychronic time system whereas most of the western countries believe in monochronic time systems. The general perception is that people following monochronic time system are better organized. Hence, monochronic system is superior.

1. Attributes of the two cultures

Below is a table of attributes the people of two cultures show with the current business buzzwords and applicability to Indians. Check it out and tell me whether Indians attitude towards time is going to be strength in future?

No Monochronic People Polychronic People Buzzwords Applicability to Indians
1 Do one thing at a time Do many things at once Single task v/s Multitasking Multitasking
2 Concentrate on the job Can be easily distracted and manage interruptions well Single task v/s Multitasking Multitasking
3 Take time commitments seriously Consider an objective to be achieved, if possible Task oriented v/s goal oriented Goal oriented
4 Are low context and need information Are high context and already have information Direct orders V/s Subtle communication Subtle communication
5 Are committed to the job Are committed to people and human relationships Task oriented v/s people oriented, People oriented
6 Adhere religiously to plans Change plans often and easily Predicted & scheduled v/s Chaotic & complex(Fixed project schedules v/s Flexible planning) Chaotic & complex
7 Are concerned about not disturbing others; follow rules of privacy and consideration Are more concerned with those who are closely related than privacy Individual V/s social communities(Privacy and security v/s social networks and internet) Social communities
8 Show great respect for private property; seldom borrow or lend Borrow and lend things often and easily Ownership v/s credit lending Credit lending
9 Emphasize promptness Base promptness on the relationship Time v/s relationship Relationship
10 Are accustomed to short-term relationships Have strong tendency to build lifetime relationships Transactional relationships v/s Long-term relationships Long-tern relationship

2. Link with current management trends

Now let us discuss the latest management mantras:

a)    Impact of  technology

Advancement in technology and telecommunications has globally connected the world with little segregation possible in work and home life. Managers do multiple tasks now and Gen Y are mentally geared to do so from childhood.

Advantage – India: Indians traditionally do multiple tasks and have a huge population of Gen Y.

b)    Effect of  globalization

Globalization and outsourcing has ensured that managers are not physically available on site to monitor tasks. Secondly, work-life balance is encouraging more people to work from home. Hence, success depends on delivering results and not on completing tasks.

Advantage – India: Indians do not have mindset for process adherence and adopt flexible approaches to achieve targets.

3)    Influence of social networking

In the age of social networking, communication is taking center stage.  Senior managers face the challenge of communicating with a global workforce of different cultures.

Advantage – India: Indian communication style is subtle, layered and non-aggressive.

4)    Demands due to complexity of business 

The space of change in the world has increased due to technology and globalization. The business environment has become complex and chaotic. The long-term planning is not possible because parameters change in a short time.

Advantage – India: Indians managers are used to dealing with adversity and chaos. They are comfortable working delivering results with minimum infrastructure and support.

5)    Finding meaning in relationships

The western organizations have realized that in the long run transactional relationships result in dysfunctional organization culture and reduce customer loyalty.

Advantage – India: Indians believe in long-term relationships even in business. They conduct business after establishing trust and respect in the relationship.

Closing thoughts

I do not know whether I am on the right track. Nevertheless, in my opinion we definitely need to relook, as the risks are high. For instance, presently the western organizations are developing their organization structure, processes and framework according to monochronic thinking. On the other hand, as the business environment requires polychronic behaviour, there is going to be clash in the system. Employees will be confused and unnecessary conflicts will occur. That results only in one thing – lower profits and higher risks.

In Indian organizations, we need to be clear that we do not adopt behavior patterns and change the culture according to our perceptions. We need data and analysis to assess the culture that will be suitable in future. It is possible, that a polychronic culture is better.

Participative Leadership Originated In 4th Century BC In India

My last post on Indian Management Model generated a common comment – “India already has a management model where obedience to the boss comes first!” That is the common perception so I decided to delve deeper into the subject. Where did the authoritarian style of leadership come from in India?

The common perception of modern day CEO was that a CEO had all the answers. He was all knowing same as the prior period kings. In this century, the management mantra is that CEOs don’t have all the answers and should have the ability to ask the right questions. They need inputs from all to form decisions. Therefore, the shift clearly is towards participative leadership style.

After some research, I found that authoritarian leadership style originated from the Greek terminology “autocratic leadership”. My view is that Indian history is full of examples of participative leadership. Let me explain this viewpoint further.

In Ramayana, the main characters considered obedience a virtue. However, Buddha propagated the view – question everything, don’t take anything at face value. Subsequently Mahabharata is full of characters doing exactly as they please, breaking all the rules and getting into a lot of trouble. In it, Krishna asks Arujuna to fight his teacher Dronacharya, his elders, most of his relatives and friends since they were supporting unethical Dhurypdhana.

kautiliyaFurther, Kautilya’s Arthshastra gives a full process for the king to take decisions after consulting his ministers, officials and public where required. He discussed participative leadership in 4th century BC. Surprised! Let me share his thoughts with you.

1.     Discuss with ministers and employees

The king shall deliberate over matters with a number of people as required. It states that “No deliberation made by a single person will be successful; the nature of the work which a sovereign has to do is to be inferred from the consideration of both the visible and invisible causes.”

2.     Obtain outside counsel

It further mentions that discussions should not be restricted to ministers and their direct reports. The king “shall sit at deliberation with persons of wide intellect.” Hence, it discusses the concept of consultation from people outside the ministry.

3.     Encourage constructive confrontation

Next, the Arthshastra mentions that the king should hear all opinions even contrary to his. It states – “He shall despise none, but hear the opinions of all. A wise man shall make use of even a child’s sensible utterance.”

4.     Selection of advisers

Then Arthshastra states that king should not select people on a random basis or those who have no clear idea of the execution of work required. It states -“He shall consult such persons as are believed to be capable of giving decisive opinion regarding those works about which he seeks for advice”. Hence, qualification and knowledge of advisers is a prerequisite.

5.     Opinions of competitors

Kautilya does not suggest that advice should be sought from friends and allies alone. He states – “nor shall he (king) sit long at consultation with those whose parties he intends to hurt.” Hence, getting competitive information and viewpoints hasn’t been ruled out.

6.     Number of advisers

Kautilya advises that in the normal course of business the king should discuss with 3-4 ministers. He states that discussing with one minister is useless, as he will advise “ willfully and without restraint”. Discussing with two would not help as “the king may be overpowered by their combined action, or imperiled by their mutual dissension”. Discussing with too many minsters will cause a great deal of trouble and slow down the process.  I think Kautilya has adequately covered modern day challenges of selecting advisers.

7.     Method of discussion

Last but not the least, Kautilya defines that the king should choose to hold a collective meeting or individual interactions depending on the situation. In his words – “The king may ask his ministers for their opinion either individually or collectively, and ascertain their ability by judging over the reasons they assign for their opinions.”

Closing thoughts

Kautiliya comprehensively covered most of the aspects of participative leadership in his Arthshastra.  Authoritarian leadership appears a western concept and not an Indian concept as is commonly believed. The style took major hold during industrial revolution. With globalization and increasing complexity of business, participative leadership is gaining ground. Concepts of collective intelligence and crowd sourcing are garnering strength.

Moreover, the main concept of Hinduism is – everything that is created is destroyed and everything that is destroyed is recreated. If it is true, then history repeats itself. Then isn’t it better to understand the historic management concepts and learn from them.

Lastly, in the creation of new world order, nothing is sacrosanct. In words of Jalaluddin Rumi – Don’t be satisfied with stories, how things have gone with others. Unfold your own truth.

References:

1. Arthshastra by Kautilya

The Indian Management Model

I am asking my readers – Have you heard about the Indian Management Model. If not, then why not? India has a rich history of baniyas (business community) who excelled in trade. India controlled one-third to one-fourth of the world wealth in the classical period (1AD to 1279 AD). So why do we not have Indian management principles?

Indian business schools and colleges teach management concepts formulated by Peter Drucker and Fredrick Taylor. Granted America had a dramatic and glorious history of business growth. However, presently the media headlines proclaim just one thing – American business environment sucks! Indians have made great strides in adopting the American money market principles but shouldn’t we stop and redefine them.

Indians managers may think it is not possible, but Bollywood has taught us it is possible. Yeah, Bollywood has chosen the best of both worlds. Aamir Khan’s Lagaan reached the Oscars with dirty dhoti clad Indians singing, dancing, and playing cricket. Even Danny Boyle’s Slumdog Millionaire had a song and dance sequence. Bollywood movies contain high-octane emotional drama, no-brainer jokes, head over heels in love stories, superman fight sequences, songs and dances. Bollywood adopted the Hollywood technology, marketing and financing strategy, and retained the cultural core of Indian cinema. It presented itself to the world in various award functions without attempting to incorporate Hollywood sensibilities and tastes. It is now so popular that even US dance reality shows have with Ballad and Hip Hop, Bollywood dance form.

We need to do the same with Indian management rather than blindly adopting western best practices. Below are some of my rather radical thoughts on how we can do it. Read it and tell me what you think.

1.     Holistic Business

The stupendous success of American capitalism in 20th century resulted in making the money market model popular. India initially after independence followed socialistic model but after liberalization in 1990s is foraying into hard-core capitalism.

Now, after witnessing the pitfalls American business concept is undergoing change. More and more people are questioning the basic premise that business is for profit alone. People are propagating that business has responsibility to all its stakeholders – investors, customers, employees, suppliers and society. It cannot profit while harming the society.

From ancient times, India propagated the concepts of holistic business. The stories in Indian history repeat the same message. A businessman is required to conduct business ethically and responsibly and has to give back to the society.  Unlike the west, Indian philosophy focuses on balanced life and not the concept that more is better.

Hence, while the west was struggling with high CEO salaries, until recently, India was not having this problem. The Indian CEOs salary increases have occurred in the last 6-7 years. While the western public is protesting against these high salaries, Indians are acquiring the bad habit. The Indian business leaders need to look what they are copying from the western world under the guise of management nuggets, best practices and benchmarks.

2.     Non-violent Competition

Once a friend remarked – “You quote Mahatma Gandhi and profess to be a follower of non-violence principles, but you are always fighting”.

I responded – “When was Gandhi ji not fighting? He fought the British Empire for half his life. He just did it non-violently. He based his fight on humane principles and values.”

We need to introduce the concept of non-violent competition in the business world. The financial crises in the west showed that cut throat completion, aka dog eat dog world results in organizations with dysfunctional cultures. The banking regulators’ reports prove it.

Indian principles of non-violence (ahimsa) state – “do not harm anyone”. It does not say – “do not excel”. Indian business leaders must focus on achieving great heights based on knowledge, ideas, innovation and strategy. They must not focus on running down their competitors through industrial espionage, illegal acts or negative publicity.

The same applies to Indian employees. Excel on merit and not by creating misfortunes for your colleagues.

One thought to keep is – Non-violence and success aren’t two mutually exclusive terms.

3.     Teach Ethics Through Indian Philosophy

When I started blogging, an American blogger gave me feedback on one of my articles – Buddhism in Corporate Life. He said that in US they don’t mix religion with business ethics. Though I understood his point, I couldn’t see how Indians could adopt it. In India, religion is entwined with Indian philosophy in every aspect of life. The values and attitudes of a country’s population define its culture.  We cannot segregate business ethics from the whole piece and teach it in isolation.

The pujas, fasts and festivals of various religions of Indian sub-continent would account for 300 days in a year. There is a moral story behind the folk tales of numerous gods and goddesses. The western world is now talking about “storytelling” to give messages and sell concepts. The Indian mythology did just that. Then why not use it to educate on business ethics?

Let me put it another way. How many Indians would know the Utilitarian Approach of Jeremy Bentham and John Stuart Mill or the Rights Approach of Immanuel Kant? My guess is less than 5%.

Now how many Indians have heard of the Hindu philosophy of Karma? My guess is more than 70%.

Which ethics philosophy would be easier to sell to Indians? The one they are familiar with, and connect at emotional and psychological level.

Unfortunately, in India political parties create a ruckus whenever Indian concepts are included in the school course syllabus stating it is favouring some religious group. They don’t object to the introduction of western concepts. We need to stop being apologetic about Indian heritage and proudly learn from it.

4.     Inclusive Workforce

The term “Diversity Management” sends one clear message – “You were not welcome and we are doing you a favour by inviting you”. It applies to women, LGBT group and minorities.

In the last few years, LGBT rights have taken centre stage in the western world. Let me touch a bit of Indian history.  The British in 1862, introduced section 377 of Indian Penal Code prohibiting homosexual activity as British soldiers had sex in the ships travelling to India.

d5c60e9c0c1f11e1abb01231381b65e3_7Before British rule, Indians accepted homosexuality without aversion. Homosexuals were not considered inferior or abnormal. In Hinduism context, every person has a masculine and feminine side and the percentages vary in each human. No one is completely male or female. Hence, some pictures depict gods in the conjoined half-male half-female form.

My guess after reading the Da Vinci code is that Christianity propagated the concept of women being inferior to men. Before the Moghul rule in India, Indian women enjoyed equal rights. Hindus pray to their gods along with their soul mates – Ram- Sita, Krishna- Radha, and Shiv-Parvati. Goddesses Durga, Lakshmi and Saraswati represent power, wealth and knowledge. Ramayana and Mahabharata, depict king Ravan and Dhuryodhan respectively, as evil for sexually harassing women.

Before the misrepresentation of caste system in India, a community was defined according to the nature of work they were doing. And not on basis of religious inferiority or superiority.

Hence, in India we need to go back to 1 AD to understand the concepts of inclusive society to develop standards for inclusive workforce.

5.     Social Communities and Soft Skills

The American social concept is that an individual’s needs are superior over family and society needs. However, the Indian concept propagates superiority of family and society needs over personal needs. With nuclear families in the last twenty years, Indian society is transitioning towards American concept, thinking it is better.

Though if you read the latest American management mantras, they talk about:

a)  Building relationships – Transactional relations do not work in the long run, hence the use and discard policy is losing ground. Indians work with business partners after building a relationship of trust and respect.

b) Collaboration and teamwork – Being able to work with teams is a key strength. Employees are rewarded for collaboration. Individual star performers no longer enjoy the prestige of the last decade. Indians work well in groups as they have numerous members in family to cater to and learn in childhood to meet different stakeholder interests.

c)   Service leadership – Arrogance, over-confidence and extravert behavior in leaders is rewarded in America. However, now service leadership or level 5 leaders are valued. Indian leaders, be it Gandhi or Nehru, were known for their humility and service leadership. 

Closing Thoughts

Indian civilization is one of the most ancient civilizations in the world with a very rich history. The Vedas, Arthshastras and various philosophical texts provide a vast reservoir of knowledge on life, business and society. Even Steve Jobs and Beatles got that. Indians needs to go back in time to understand those principles. While the west offers a lot of knowledge, it has been tested only for a century or so and fatal flaws are showing.

Adopting the western principles blindly is not the solution. One of the biggest risks is when a company copies or adopts something without evaluating the feasibility. It holds true for management models also. Choose the best of both worlds and devise a new management model suitable to India.

Auditors Criticise Without Value Addition

This is my 251 post and it feels good to have written so many. So I thought of dealing with a difficult and sensitive topic for auditors. The corporate world views auditors with jaundiced eyes and auditorville has a bad reputation. Scott Adams in his book “Thriving on Stupidity in the 21st Century” humorously described auditors in the following paragraph:

“Auditors get more respect and more bribes than accountants. That is because auditors are relatively more dangerous. Auditors are generally plucked from the ranks of accountants who had very bad childhood experiences. The accountants who don’t go on to become serial killers have a good chance of becoming successful auditors.”

The reputation comes from doing post mortems, writing long reports on deficiencies and criticizing the work of business teams. No one likes a critic and especially not those who do not do any value addition. So where are we going wrong?

1.  Criticizing Makes an Auditor Successful

The common perception is that more faults an auditor finds in an audit, the better is the quality of the audit. This is driven by the fact that some audit departments have a key performance indicator on number of observations. If there are no observations or weaknesses, the audit quality was not good. Let me mention an old story here.

A couple was riding a donkey to reach their village.

Two passer-by’s saw them and said – “Poor donkey, has to take the load of two humans.”

The husband heard the comment and got of the donkey. Further, two passer-bys saw them and said-“See, the wife is sitting comfortably on the donkey and the poor husband is walking on the road.” The wife got off the donkey and made her husband sit on it.

After a few kilometers  two spectators said – “See what the world is coming to, no chivalry. Man is riding the donkey and the poor woman is walking.” Now both husband and wife started walking along with the donkey.

Then another set of bystanders said – “See the idiots, both are walking and no one is riding the donkey”

The purpose of audit is to provide assurance on the process, not find faults with it. For instance, last year you conducted an audit of purchasing process and made ten observations. Will the audit of the same process be successful if you made 11 observations or nil observations? If auditee implemented previous year recommendations, then they should not re-appear. If without a change in process, you found new weaknesses, then it means the previous year audit was not done properly. Hence, criticism doesn’t make an audit a success or a failure. The quality of observations holds meaning.

2. My Way or Highway

The other presumption is that audit can be done without much of business knowledge. Just high-level understanding is required. This is really an incorrect view. I recall in my training period I was assigned an internal audit client that flew helicopters. When I was doing bank vouching, I had said to my colleague doing cash vouching  -“Wish we were auditing a car maker, at least I know the cost of a car tyre.” I was checking the appropriateness of expenses including repair and maintenance of helicopters when I hadn’t seen a helicopter from a five feet distance, let alone sit in one. Your guess is as good as mine on the quality of observations and value addition provided.

The big problem comes, when after doing an audit without business knowledge we refuse to listen to the business teams that the observations are irrelevant or incorrect. We don’t appreciate the different perspective of business teams and high-handedly push down our recommendations. Times of India mentioned a nice joke on this last Sunday.

Why did the chicken cross the road?

Plato: For the greater good.

Aristotle: To actualize its potential.

Darwin: It was the next logical step after coming down from the tree.

Neitzsche: Because if you gaze too long across the road, the road gazes back at you.

Buddha: If you ask this question, you deny your own chicken-nature.

Closing Thoughts

In the 21st century, auditors can’t hold a stick to beat the business teams all the time. The role has changed. With it the skill set and approach needs to be changed. If auditors are not able to give a better solution or process change, they should consider whether their criticism makes sense or not. Maybe, business needs to live with the control weaknesses, take the risks because the costs of plugging them are very high. The observation and recommendation should provide value addition, either in the form of assurance or improvement. Else, a lot of expenses are made to cater to auditors’ egoistical viewpoints rather than seeing business viability.

All criticism and feedback on the blog is welcome. Please share your views. A big thank you to my readers for reading my 250 posts.