Board Appointment Controversy Surrounding DHFL Scandal: The Alleged Cyber Breach in IT Operations
In a shocking revelation, the Securities and Exchange Board of India (SEBI) has detailed an accounting fraud at Dewan Housing Finance Corporation Ltd (DHFL) that inflated the corporation's profits by an astounding Rs 10,853 crore ($1.23 billion).
At the heart of this scheme was a cunning use of technology. The fraud was orchestrated through the creation of a fake virtual branch named "Bandra branch" and the manipulation of multiple accounting software systems. This allowed DHFL to disguise large unsecured loans extended to non-existent entities as retail housing loans, artificially boosting profits.
The fraudulent loans, known as "Bandra Book Entities" (BBEs), were companies with no net worth, assets, or cash flows. These loans were processed using the fake virtual branch and multiple accounting systems to create a false impression of genuine retail loan disbursements. Despite the BBEs failing to make any interest or principal payments, DHFL recorded fictitious interest income, giving the appearance of increasing profits from FY 2007-08 to FY 2015-16, a period during which the company was actually incurring losses.
The automated IT systems were instrumental in this deception. The "hack" enabled DHFL to use these three different accounting software platforms to record and present intercorporate loans as retail housing loans, effectively fabricating loan accounts and financial entries to hide the diversion of funds.
The main perpetrators of this fraud were the promoter brothers Kapil and Dheeraj Wadhawan, along with other board members and key executives who collaborated in this elaborate deception involving IT means to inflate profits and divert funds.
In summary, the fraud was executed through:
- Creating a fake virtual branch and reactivating closed retail loan accounts to process bogus retail loans
- Using three different accounting software systems to mask the diversion of unsecured loans to BBEs as retail housing loans
- Booking fictitious interest income on loans where no payments were made
- Inflating profits by Rs 10,853 crore through this artificial accounting and IT-driven concealment of the real financial status
For those interested in reading more about this intricate accounting fraud, the detailed report can be found in the SEBI roundup. However, please note that this article is part of premium content available for subscription.
In this elaborate financial deception, the execution included the creation of a fake virtual branch and the manipulation of three different accounting software systems to fabricate loan accounts and financial entries, hiding the diversion of funds. The fraud also involved booking fictitious interest income on loans where no payments were made, contributing to an inflation of profits by Rs 10,853 crore in the business sector.
