This report evaluates key findings from our latest fraud survey in India that reflect corporate India's resistance to fraud. The study also evaluates the emerging fraud risks and measures taken by various organizations to mitigate these risks.
Our survey highlights
- Incidence of fraud is increasing
Nearly three-fifths of the respondents said that their companies have been subjected to fraud during the course of last year. Moreover, with the growing use of technology in business operations, instances of technology-led fraud has also increased significantly.
- Top five fraud risks:
- Data or information theft and IP infringement
- Bribery and corruption
- Fraud by senior management and conflict of interest
- Vendor fraud or kickbacks
- Regulatory non-compliance
- Changing profile of a fraudster
According to most survey respondents, "He is an internal employee of a company, who is in his 30s and is far from retirement. He is in the middle management cadre, working in the procurement or sales department." With increasing consumerism, there is a shift from the "need" to "greed" as a motive for committing fraud.
- Lack of action against the fraud perpetrator
Companies are reluctant to take legal recourse against employees responsible for committing fraud. Only 35% of the respondents said that their company takes any disciplinary action against unscrupulous employees.
- Significant impact of fraud
Loss of reputation emerged as the biggest and severest collateral damage caused by fraud. External perception is highly valued by companies, since damage to their reputation can result in loss of revenue or destruction of shareholder value, even if they are not found guilty of having committed a crime.
- Continuing bribery and corruption risk
Bribery and corruption continue to be a perpetual challenge for corporate India. Kickbacks are given to win or retain business, to obtain approvals from government agencies and to influence people to make favorable decisions.
- Weak anti-fraud measures
Companies still rely on old traditional anti-fraud measures. Reliance on internal and external audit, and code of conduct is high. This seems surprising in today's environment, where fraudsters are using advanced tools and technology to perpetrate frauds.
Data and Information theft and IP infringement pose the biggest risk, our respondents said
"A proactive approach to fraud risk management is the need of the hour. Technology and a robust whistle-blowing mechanism can play a large role in mitigating these risks."
says Ernst & Young Partner Arpinder Singh.
Proactive fraud risk management: Need of the hour
Business leaders are aware of the need to address fraud risks, but lack of a comprehensive and integrated approach to fraud risk management continues to be a concern. Currently, companies take a "check-the-box" approach to fraud risk management, conducting isolated risk assessments, whereas the need of the hour is a cohesive but wider approach, aligned with the strategic business objectives of organizations.
Technology can play a larger role in fraud risk management. Another possible area that should be considered by companies in countering fraud risk is a whistle-blowing mechanism.
Changing regulatory scenario: Positive change
There is increased regulatory activism, and existing Acts are being amended and updated to address new and complex threats. Regulators are proposing more stringent standards for prevention, detection and reporting of fraud.
The fact that around two-thirds of the respondents said that scams and corporate frauds were unearthed because of legislations such as the Right to Information Act (RTI) and Public Interest Litigation (PIL) speaks volumes about public awareness in India.
Globalization has added to the regulations to which companies need to adhere. Governments around the world, in an attempt to address bribery and corruption risks, have introduced anti-corruption legislation such as the US FCPA and the UK Bribery Act, which have extra-territorial jurisdiction.
More and more companies are taking cognizance of the changing regulatory scenario. We are seeing an increased focus on corporate governance. Also companies are increasingly now taking proactive measures against fraud, bribery and corruption.
For details, download a copy of Fraud and corporate governance: Changing paradigm in India.