Case study · Disputes
Stock That Existed Only on Paper
A borrower inflated stock statements and booked circular sales among related firms to draw working capital, then moved the money into promoter property.
- Loan & credit fraud
- Fund siphoning & round-tripping
- Financial statement manipulation
- Sham counterparties & fictitious transactions
- exposure reviewed
- ₹120–150 Crexposure reviewed
- shortfall in reported stock
- ~70%shortfall in reported stock
- traced to related entities
- ₹60–80 Crtraced to related entities
- proceedings supported
- Recoveryproceedings supported
01The situation
The warehouses were full on paper and half-empty on the ground.
A consortium had financed a commodity processor against stock and receivables. Drawing power rose quickly, then the account slipped. The lenders needed to know whether this was business stress or diversion.
How it came to us
The account turned irregular soon after a sharp rise in drawing power, and the lead bank commissioned a forensic audit.
02How it worked
- 01Monthly stock statements overstated inventory, lifting drawing power.
- 02Sales and purchases were booked in a circle among related firms to inflate turnover and receivables.
- 03Funds drawn were moved to related entities as advances for purchases that never arrived.
- 04The money was used for promoter real-estate projects and to service other borrowings.
- 05Stock audits relied on records supplied by the borrower.
Swipe sideways to see the whole diagram.
- The organisation
- Insiders involved
- Outside parties
- Channels & documents
- Where the money ended up
- Repeats / feeds back
How it was hidden
Related firms with different names and common control, circular trades that netted to zero, and stock audits that sampled documents rather than goods.
03The challenge
Reconcile reported stock and sales to reality, trace where the money went, and produce findings that could stand up in recovery proceedings.
What made it hard
- Four years and multiple bank accounts
- A web of related firms
- Commodity stock that is hard to verify after the fact
- Findings needed for legal recovery
Red flags that were there to see
- Drawing power rising faster than business
- Large advances to related suppliers
- Receivables from a small group of linked buyers
- Stock audits relying on borrower records
04Our approach
- Workstream 01
Stock reconciliation
Reported stock against purchases, production, sales and physical evidence.
- Workstream 02
Related-party and circular-trade analysis
Identified common control and trades that went round in a circle.
- Workstream 03
End-use of funds
Traced drawings to their final use.
- Workstream 04
Corporate records and OSINT
Mapped the promoter group's entities.
- Workstream 05
Evidence documentation
Findings structured for recovery proceedings.
The breakthrough
Reconciling stock statements with purchases, production and dispatches showed reported inventory could not have existed, and end-use tracing followed drawn funds through related firms into promoter real estate.
05What we found & did
- Stock statements overstated inventory over several quarters.
- Circular trading among related firms inflated turnover and receivables.
- Diversion of working-capital funds to related entities and promoter property.
- Accounts were dressed up ahead of limit renewals.
- No collusion by bank officials was found.
- Reported
- 100
- Reconstructed
- 30
Illustrative
06The impact
The consortium used the findings to classify the account, initiate recovery and enforcement against identified assets, and tighten stock audit standards for similar borrowers.
- exposure reviewed
- ₹120–150 Crexposure reviewed
- shortfall in reported stock
- ~70%shortfall in reported stock
- traced to related entities
- ₹60–80 Crtraced to related entities
- proceedings supported
- Recoveryproceedings supported
07Lessons for your business
The controls that would have stopped this, or caught it sooner:
- Verify stock physically and against movement, not documents alone.
- Map borrowers' related parties before sanction and at renewal.
- Watch drawing power that rises faster than sales.
- Track end-use for advances to suppliers.
~₹5 Crundue benefit quantified
The CEO's Three Vendors
A subsidiary CEO routed a rural retail rollout through vendors fronted by his own associates. The money trail led back to him.
- Procurement reconstruction
- Corporate and statutory records
- Ground intelligence
- Funds-flow tracing
US$4.7M+diversion traced to the founder
Zero Skin in the Game
An investor funded a road-construction contractor. Within months, the founder's own contribution had quietly gone to zero and the diversion had begun.
- Records digitisation
- Funds-flow reconstruction
- Personal wealth analysis
- Corporate and property records
~1Memails and documents reviewed
The Fortune That Wasn't There
Shareholders suspected their managing director of hiding a fortune. On the data available, the money trail did not support that suspicion, and it surfaced employee frauds instead.
- Digital forensics
- Source and application of funds
- Related-party mapping
- Market intelligence
Client names and identifying details are withheld to protect confidentiality. Specific references and client experiences can be shared on request, with the client’s consent.
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