Mahindra & Mahindra Financial Services Ltd reported to the stock exchanges at close to midnight on 22nd April that a fraud had taken place.
This was followed up with another notification that the board meeting convened for 23 April to consider the financial statements for the year ended 31 March 2024 would defer the agenda relating to the consideration of the said item, due to the pendency of the investigation of the fraud, but would deal with the other agenda items as scheduled.
The company had detected a fraud sometime towards the end of Q4, around March 2024. The disclosure also states that the RBI’ central fraud monitoring cell was informed of the incident and arrest of a few persons had taken place. Given the above, it is quite obvious that the board and the audit committee must have met physically or virtually, as such crucial decisions cannot have happened without a discussion.
The fraud is 15 per cent of average 3-year profit!
Prior to the intimations made to the exchanges, the company had intimated the stock exchanges on 02 April, its monthly business updates for the month of March 2024 which said nothing about any untoward incident in the company! It stretches one’s credibility that a fraud, subsequently estimated at Rs 150 crore, did not exhibit signs of a major catastrophe at first sight. Even if a precise estimation was difficult on the first day, the fact would be known to the top management, that for a company with a three-year average profit of about Rs 1000 crore (2021-23) the figure ultimately would be a material sum. In fact, it is almost 15 per cent of the average of the last three years’ profits.
Even if the full visibility on the gamut of the fraud was not apparent in the first instance, it would have been obvious that something of an abnormal nature had occured. It is not like a common fraud where an employee forges petrol bills and pockets a reimbursement of conveyance expenses. The question that arises is, why the company delayed in intimating the stock exchanges and the investors? Lesser companies may be quibbling on the timing and applicability of the regulations for disclosures, and whether the materiality threshold was breached or not. Mahindra group is generally seen as a bench mark in good governance and transparency. There is every reason to cavil that they have failed to uphold the investors’ expectations.
Why a hurry for the board meeting?
There is also poor judgment on their part in fixing the date of the board meeting to consider the results. The exchanges were intimated on 12 April about the board meeting on 23 April to consider the results. They have now suffered the mortification of postponement of the consideration of the results. Given the fact that the fraud was detected only in the last days of the fourth quarter, it would have been foolhardy for the auditors to have committed to such a tight deadline irrespective of the reality that audit just gives an assurance on the numbers and the entire responsibility to prepare the accounts is on those charged with governance (TCWG)!
There is an inexplicable hurry to publish results among some companies that often brings up the question whether such accounts are actual figures or an estimate! Ironically, the company has filed with the exchanges its updated policy under Regulation 8(2) of SEBI (Prohibition of Insider Trading) Regulations, 2015, regarding publication of price sensitive information, on the very same day it did the above said disclosures, which this article believes is much belated.
The first three points in that policy should perhaps first be read by the board members to see how much they are in adherence of the same!
