Status as on 12/06/2019
RERA has been passed by the legislature as a regulatory act to regulate the activities and the transaction involved in real estate sector. The RERA Act empowers the Regulatory authority to call for information or conduct investigations. These investigations have been mainly in the form of financial audit conducted by the auditors. These audits helped the authority in finding out the delay in completion of the project due to dried funds in the accounts.
However, a trend has started wherein the RERA Authorities has started forensic audit instead of financial audit, of the firms. This is conducted to find out the fraudulent activities of the firms and how they have been concealed from the organization. Forensic audit assists in collection of evidence to prosecute a party for any fraud or mis-conduct. Forensic auditing is the integration of accounting, auditing and investigative skills so that the disputes are resolved in a court of law. In financial auditing, techniques are mostly in the nature of substantive and compliance procedure however in forensic auditing are analysis of trends or in depth analysis of some transactions. Moreover forensic auditing can be done even from the beginning and doesn’t have any kind of limitation on time period, however financial auditing can be done only for that specified accounting period.
Another major area over which forensic auditing proves to be an advantage over financial auditing is forensic auditing does not depend on the representation of management or management certificate. Forensic auditors are free to conduct independent verification of any transaction. UP-RERA in the case of Ansal Properties & Infrastructure Limited (Ansal API) have directed for forensic audit of the projects over the case of fraud and diversion of funds which amounts to Rs.600 Crore. The financial auditors submitted a report stating that Ansal has been committing breach of RERA Compliances, are managing separate accounts and doing half yearly project account audits and in furtherance of the report, the Ansal Properties have been issued a show cause notice for the alleged fraud. In Amrapali case of diversion of funds, forensic auditors were appointed to investigate into the transactions and activities of company. The report of the auditors found a diversion of Rs. 3500 Cr by the promoters.
Therefore, it can be concluded that to investigate the wrongdoing of the promoters and to protect homebuyers, the judiciary has been inclined towards using forensic auditing as their best tool. Observing the potential of forensic auditing for solving the cases, it should be made compulsory in the cases where delay in possession is beyond a reasonable time and where there is a possibility of huge diversion of funds and fraud.