forensic-redflags-indialisted

# Forensic Red Flags (India) Indian accounting fraud has a recognisable grammar: cash that exists on paper, receivables that never age out, a subsidiary web, a related-party supplier, a pledged promoter, and an auditor who leaves. This skill scores those patterns. The output is a **risk register with evidence**, never a verdict. Say "these five disclosures are inconsistent with management's story", not "this is a fraud." ## Part 1 — Quantitative screens Run all of these. Each needs 5 years of consolidated data. ### 1. Cash conversion ``` Cumulative CFO / Cumulative PAT (5y) < 0.6 → flag CFO / EBITDA (each year) < 0.5 → flag ``` Profits that never become cash are the base case for every accounting fraud. ### 2. Working capital drift ``` Debtor days = Trade receivables / Revenue × 365 Inventory days = Inventory / COGS × 365 Creditor days = Trade payables / COGS × 365 Cash conversion cycle = Debtor + Inventory − Creditor days ``` Flag when debtor days rise >20% over three years while revenue growth is flat or slowing. Then check the ageing schedule: receivables over 180 days rising as a share of the total, with provision not keeping pace, is the signature of revenue recognised on paper. ### 3. The Beneish M-Score (8 variable) ``` M = −4.84 + 0.920·DSRI + 0.528·GMI + 0.404·AQI + 0.892·SGI + 0.115·DEPI − 0.172·SGAI + 4.679·TATA − 0.327·LVGI ``` Where TATA = (Income from continuing operations − CFO) / Total assets. **M > −1.78 → elevated