Failure is part of building a business, but how you fail matters. In the final session of our “Fraud Proofing Startups” webinar, experts Manoj Nair, Vidya Rajarao, Piyush Kakkad, and Saradha Govindarajan join Rashmi Limaye Guptey from Lightbox to explore the line between honest failure and fraud. The panel highlights why intent is key, how early-stage fraud prevention can be practical, and the strategic value of internal audits. They emphasize that good governance isn’t a burden—it’s an advantage. Stay tuned for more insights from our ‘Governance for Startups’ series. 

Rashmi Guptey: Whether it's large listed enterprises or even startups as they're growing, it's it's important to fail. I mean, while you fail, you know, learn quickly, be agile, but governance shouldn't be compromised, because you're growing at a very fast pace, right? And I'd like to call it like a clean fail, right? Is the failure attributed to specific business experiments which were kosher, or is it due to these kind of ugly ducklings? Right? You have fraud or bad governance practices. So maybe just as in sort of a way to conclude what we are sitting here today and discussing, how do you look at, you know, building governance

Saradha Govindarajan: I don't think one should worry about fraud, you know. I mean, I think it's a it's a risk of doing business. You're doing business with people. Sometimes customers will defraud you, you know, if your return rate is very high, you know, and you've still delivered products like in E commerce, like Piyush is saying, once you start analyzing data, you'll see pockets of customers who where their return rate is very high, or they have high rebates, high discounts. So fraud could happen anywhere. So I don't think you can run a business thinking, Oh, I mean, what do I do? I don't want to ever commit fraud. That's utopian. That's not going to happen. Fraud is bound to happen, whether it is from your customers, your vendors, your employees, or as you grow bigger and you become a favorite of everyone. You know, there is also greed, and also sometimes even competitors, you know, like Sharada was saying, we'll try and, you know, scuttle your growth, and try and induce someone inside or outside to generate kickbacks. You know, try and see how fraud proof your company is. So I don't think you can run your startup thinking, I want to avoid fraud. But I think you should run your startup thinking, I want, you know, I'm building a sustainable business. I believe in the idea. I would I want to create a business where, you know, it exists for five years, 10 years, 15 years. You know, for the longer duration, it isn't one year, and you want to exit, fine. You know, you don't want to run it for five years. That's your chance, your choice. You have the right to make the decision you want to sell it to another company, but at least your idea or your business survives, even if you are not there at the company. What is worse is, you know, if the business is good, but that business has completely lost its mojo because of all these governance issues, like related parties, non-payment of PF, favoritism with vendors, kickbacks. I mean, that's messy stuff. You can't unwind them. And today, the regulations are so strict in terms of the Insolvency and Bankruptcy Code that even a small creditor, you know, who's owed, you know, 100, 200 rupees, an operational creditor can file an insolvency petition if his bill has not been paid for 3060 days. And MSMEs, you know, micro and small, and medium enterprises have tremendous support from the government. So and you cannot default on payments to MSMEs. You have to provide for interest. And you know, so you don't want to fail for the wrong reasons. You fail for the right reason. You know, because your idea was way ahead of the market, for example, or you did not, you know, your customer did not accept your product, or your pricing was incorrect. You know, maybe you built a Mercedes when the market only wanted a Maruti, you know, those are not, you know, those are actually not failures of fraud. Those are just entrepreneurial, you know, lessons, and it's only a stepping stone to success. I mean, that's, that's all I would say.  

Manoj Nair: I mean, for me, the closing statement would be, don't play the losing game. Because, like all of us have been saying, Stay put, stay rooted. And if it's, I think you're all got into a, it's like a five-day match, not a 2020 that we are playing here. You know, all types of non existent shots are played in 2020 whereas in five day cricket match, you generally see the copy book style of and you that's where the real class of a person is known, rather than what you see in a 2020 so, so basically, what I wanted to communicate here is that you know, governance is a vast subject, and expecting a startup to go the way a listed company is doing as governance or invest in compliance? Maybe it's a tall ask. So, as an auditor, I would only expect that a certain basic level of control should be there. There should be regulatory mechanisms to be respected. There should be a periodic review by the board of operational management to understand where the company is heading. And if there are any reasons where they want to interact with an auditor, don't wait for the auditor to come in the year-end. I keep telling my clients, even the mature ones, even the startups and the mature ones, that you know, keep the auditor in the loop, and a special transaction is happening within the company, there could be certain non-disclosures. Compliance is what you are already doing after 31st March. If you come and tell me that this has happened, and now correct it. Helped me correct it. It may be very late in the day and and I have never shied away from giving even a disclaimer in my clients report and disclaimer, continuous disclaimer after a couple of read, disclaimer, generally we walk out, because if the client is not interested in continuing and doing it in the right way is what the way you look at it and from and remember one thing in Companies Act and under various guidance, including the nfra also looming over all our heads. You know, moving a disclaim report to a clean audit report is a big challenge for an auditor and for the organization. So, like they said, fail clean. I don't think we will ever say that, you know, the company has to be qualified because you failed in the you know test that you're conducting or the trials that you're conducting on your product. But if you did something wrong, I'm sure having a good auditor, he's not going to shy away from reporting it and bringing it to wherever, you know, MCA or wherever the filing happens. So spending a little bit on good governance is always good for the organization. 

Vidya Rajarao: I'll keep it very short. I think my concluding remarks are twofold. One is the culture. The culture has to be set and followed both by the founders and the senior management, right, and they cannot emphasize it time and again. And that kind of leads the way, intent and all of that. So when you build a company, build it right, and build it with the right intent, I'm sure you'll fail, but if you see the definition of fraud, also, it's intent to cheat others, I'm sure you'll not make payments if you fail, but the intent should not be to dupe people. Right? That's what people are looking for. And if you fail right, you have the right channels, like bankruptcy and whatever. Right, you can also go and claim those gems. So that's one. The second thing for me is, from an internal control perspective, like if I'm talking to the CFOs and legal counsels, and investors, I suggest that, irrespective of the size of the company, internal audit is very, very crucial. I think Manoj said it, so I didn't want to repeat myself. And also, internal audits become such a clinical exercise, people just do it for the sake of it, to appease the statutory auditor, and be done with it. I've seen so many CFOs not even going to open the report. So, for example, you know, like when I do it, I have the HR, I send it to the HR head, ask for replies, not only for that exercise, you know, you fix it, you move forward, try and understand it helps. Rash might give you a very small example. I used to work in a hospital, and there was a fridge, apparently, a refrigerator, then there'll be a storing injections. The tip there has to be a temperature control that needs to be visible according to the pharmacy laws. I didn't know it as a CFO, and I'm, I mean, honest, I don't think like Vidya was saying. Some of them are chartered accountants. We're not supposed to be experts in all fields, right? So this was a huge eye opener, and you won't believe one month later, two months later, and some other organization, somebody lost an eye because the drug wasn't administered properly, and that drug got banned from India. So now this, now you understand what is the importance of this temperature and so on and so forth. So you know, you never know what kind of implications, regulatory impact, or authority is coming behind you. As such, you have enough tax regulators and authorities coming behind you, even if you do the right things. I mean, how much more probable subject yourself to? I don't know. But where I'm coming from is take these things very seriously. There is some amount of spending that you do at the right cost. You don't have to invest in SAP and Oracle, go very, you know, basic, try and understand your processes, understand laws, and stick to it as simply as that. 

Piyush Kakkad: So, wisdom, yes, so enhancing governance is the opportunity for Finance to increase the value of the organization. So let's do it. We just have seven more minutes, so we can take questions.

Himanshi Tailor: Hi, everyone. First of all, thank you so much to the panel and Rashmi. The insights were very valuable. From understanding how regulatory scrutiny works to understanding how to unearth fraud, manage stakeholders, and the concept of good failure, I think we surely got very useful inputs to incorporate into our corporate governance processes. Before our session, we had addressed certain questions that some of our participants had. These were some key themes and questions that they had before the session, which, you know, we'd like to maybe get some quick input on. The first one is, how do you integrate fraud prevention, prevention tools into existing business systems? If you could get some insights on what are the best ways to do it, what are the kind of means that a company can potentially in the resources of company can potentially use to integrate fraud prevention tools in their businesses. 

Manoj Nair:  I mean more than tools. Let me tell you. Now, the statutory auditors are expected to look at fraud. So there is a fraud checklist that we are supposed to run through, and because it has become mandatory in our Caro and audit reporting. So it's a kind of tool, because if you have a good audit firm, please ask them if they can share the checklist with you. You can prepare yourself so that you. It's like a control self. Assessment, I would say, by which you can assess yourself and say where you stand on it, and so that when the statutory auditor comes in, you are in a better position to explain the situation. I mean, though it's not a tool in terms of an AI tool or a technology tool, this is something that will be when I feel we are trying to share it with our clients, so that it will be helpful for them to understand. What exactly are we to