Business Against Scams and Frauds


As the cases of corporate fraud continue to rise, due diligence has become more important than ever. Check out this post to know how due diligence protects your businesses against such frauds.

While the merger and acquisition (M&A) activity in India has been on an upswing in the last few years, corporate frauds are consistently rising too. Performing due diligence allows investors to analyze the target company based on critical factors, including finance, regulatory, operational, information technology, and human resource.

The due diligence report prepared by an independent compliance counsel can provide investors with a transparent overview of the target entity and protect them against such frauds and scams. Here are some of the ways in which due diligence offers fraud protection-

1. Evaluation Beyond the Basics

As mentioned above, in a due diligence exercise, the target entity is analyzed across several parameters by an independent counsel. Interviewing key executives and employees, background checks, business practice and contractor/supplier/vendor evaluation, and using data analytics for uncovering issues and identifying red flags are some of the steps involved in the due diligence.

It takes basic investigation to another dimension to help the investor make the right decision. And as the exercise is performed by experienced 3rd party consultants, investors can rest assured that the report will be neutral and based only on facts.

2. Risk Assessment

Risk assessment is another vital part of due diligence. The diligence counsel creates an in-depth risk-assessment report that is tailored according to the industry, geographic coverage, type, practices, and product/services of every organization. Risk assessment can also discover red flags and report the same to the investors or buyers.

For instance, hidden financial discrepancies, past litigations, data privacy or cybersecurity problems, lack of internal control procedures, and employee-related issues can be highlighted in the risk assessment report for protection against frauds.

3. Examining M&A Deal structure

The deal structure during an M&A transaction is a binding agreement that outlines the rights and obligations of the involved parties. Due diligence experts can also examine the deal structure to ensure that the buyer or investor gets maximum or at least reasonable value for their investment. Professional diligence teams generally have lawyers and attorneys for deal evaluation.

All the terms and conditions of the deal are thoroughly discussed under the expert guidance of a 3rd party counsel to prevent fraud and ensure that the transaction is completed in a fair and transparent manner.

Fraud Protection with Due Diligence

While M&A transactions can prove very profitable for the investors or buyers, utmost caution is essential to ensure that you deal based on the facts. Proceeding with the transaction without entirely understanding the target entity or the risks involved could have severe financial, legal, and reputational consequences.

Before initiating an M&A deal, hire a reputed 3rd party due diligence team that can guide you through the process and protect you against frauds and scams. As professional diligence experts regularly work with businesses across industries, they better understand the modern world of corporate frauds and can protect your business against such risks.

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