Kroll in tie-up with India's BMR

According to a release, the alliance will combine both Kroll's ability to gather primary source information from internal and external sources with BMR's experience in analyzing internal financial records.

Kroll claims the Indian private equity industry has seen a 50% increase in fraud-related investigations of portfolio companies between 2012 and 2013. In all cases, investors are said to have held minority positions in the companies and did not have access to good quality information on their actual performance.

"In India, companies cannot rely on the financial information that employees, vendors and investment targets provide them since corporate governance standards in India are still evolving and accounting and auditing standards have not fully matured," said Reshmi Khurana, managing director and India country head at Kroll.

"This allows employees, vendors and companies to take advantage of the poor control environment to manipulate financial information."

The areas where Kroll and BMR observe the biggest increase in fraud-related investigations in the private equity industry are: export-oriented industries where the customers of the portfolio companies are based abroad and PE funds struggle to spot conflicts of interest; businesses that are not generating sufficient cash; and businesses that rely on government approvals and cash transactions.

Khurana added that the slowdown in the market had increased pressure on portfolio companies to meet the covenants set by the private equity investors, contributing to PE-promoter conflicts

"Private equity capital is still treated as one more source of capital by promoters, as opposed to a strategic partnership," he said. "These factors, besides the evolving regulatory and corporate governance standards in India, are leading to conflicts and fraud in portfolio companies."

Set up in 1972, New York-headquartered Kroll has offices in 45 cities across 28 countries with 4,000 employees globally. BMR has over 450 professionals and offices in Bengaluru, Chennai New Delhi, Mumbai, Pune and Singapore.

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