Individual accountability in the spotlight: Global Fraud Survey

Mumbai, India, 20 April 2016

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  • 80% state that prosecuting individual executives will help deter future fraud, bribery and corruption
  • 58% of Indian respondents believe bribery and corruption happens widely in the country
  • 84% acknowledge it necessary to identify who the ultimate beneficiary is, in third-party dealings
  • One third of respondents do not flag fraud or corruption related incidents to due loyalty to the company

EY’s 14th Global Fraud Survey: “Corporate misconduct – individual consequences”, released today, uncovers the need for corporate India to enhance its compliance focus from a micro level, to boost success of macro initiatives being undertaken by the country. The Government has already undertaken significant steps to augment transparency and crackdown corruption which is reflected in the survey. Indian respondents show a gradual but positive shift in the perception of bribery and corruption being widespread in the country at 58%, from 67% and 70%, in 2014 and 2012 respectively. This is still higher that the current global average of 39% that means there is still much ground to cover. Furthermore, 80% of Indian respondents are of the opinion that individual prosecutions will help deter such instances in the future, which is almost at par with the global perspective, at 83%. The need for transparency however, has India wanting more; 84% of the regional respondents find it necessary to determine the ultimate beneficiary during dealing with other businesses or third-parties.

The survey comprises in-depth interviews conducted with prominent senior executives in India across functions such as finance, internal audit and risk, legal, compliance and others.

Arpinder Singh, Partner and National Leader, Fraud Investigation & Dispute Services, EY India reckons that, “India’s focus on maintaining its global perception as an avid business destination requires a thorough follow-through, in terms of adherence to global compliance principles. While the current regime is seeding change through several macro changes in law and regulation, focus needs to be on the granular aspects to make this change a reality. This places considerable onus on individuals and their actions will be under the scanner more than ever before. As corporates continue with their commitment to drive anti-fraud and anti-corruption practices, internally as well as in third party dealings, their role will be instrumental in demonstrating India’s renewed stance to the world.”

Today, the global business environment is clamouring for enhanced transparency at a time of increased geopolitical tensions and heightened volatility in financial markets. The escalating threats of cybercrime, terrorist financing and, more recently, the revelations regarding widespread possible misuse of offshore jurisdictions, have increased pressure on Governments to act and companies to identify and mitigate fraud, bribery and corruption issues. Regulators recognize the threat that bribery and corruption pose to a financial system already under stress and are increasingly cooperating across borders to hold individuals accountable for illegal acts.

“The magnanimity of the larger issues prevalent today has made Governments and enforcement agencies more cognizant of the need for effective proactive measures to be set firmly in place; thereby preventing such distraught circumstances at a later stage. This is prompting a more coordinated and stern approach toward the subject of fraud and it corresponding attributes,” adds Singh.

Bribery – an accepted culture?

India ranks fairly high in terms of bribery being an accepted practice of conducting business (and win contracts) with 28% of respondents citing that is occurs frequently in their area of operation. This figure has marginally reduced from 29% in 2014, but increased from 20% in garnered in the EY 2012 Global Fraud Survey. A probable contributor to this rise may be due to an enhanced awareness about such practices being unacceptable in the larger social mind-set in the past few years.

Justifying inappropriate conduct?

Our survey found that 70% of Indian respondents believe that at least one form of unethical conduct can be justified to meet financial targets, while 30% of respondents are prepared to book revenues earlier than they should be recognized, the highest proportion globally. Furthermore, 44% of Indian respondents consider practices such as entertainment, personal gifts or services, cash payments or misrepresentation of financial performance acceptable means to meet business targets. While this figure has seen considerable reduction from the 71% it stood at in 2014, it demonstrates a critical lack of training and awareness around these facets.

Undermining threats?

  • A drop in due diligence
    One of the key aspects of deterring fraud lies within the efficiency of a company’s due diligence measures while engaging third parties and associating themselves with external businesses. The findings of our survey incidentally showcase a lack of important elements being included in these measures which are important to factor in while dealing with such entities. 46% of Indian respondents stated that country specific risks were not taken into consideration in their forensic or anti-corruption due diligence programs or processes, while 34% claimed lack of industry specific risks being included. Another revelation was that 28% failed to conduct assessments of their anti-corruption policies.
  • The ill effects of loyalty – factors preventing whistle-blowing
    Almost a third of respondents in India cited loyalty to their company (30%) or to colleagues (28%) as a reason to not report any incidents of fraud, bribery or corruption. This is a stark contrast from the global average which ranks at 19% of respondents citing loyalty to company and 18% to colleagues.
  • Cybercrime – not yet our concern
    The risk of cybercrime is also rising in India. Our survey found that 42% of the respondents in the region believed that cybercrime has been discussed by the board in the past year. The India average however is comparatively dismal at 34% respondents considering this a risk, while the global average is 47%.
  • Anti-money laundering – the financial black hole
    Indian banks are still under scrutiny for money laundering issues, in particular in relation to international trade and remittances. This re-emphasizes the continual existence of black money and the existence of a parallel economy. Companies need to upgrade their anti-fraud technologies to support monitoring of suspicious transactions and duly inform the authorities as stipulated by the regulators.

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Notes to Editors

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About EY’s 14th Global Fraud Survey 2016: corporate misconduct – individual consequences
Between October 2015 and January 2016, our researcher — the global market research agency Ipsos MORI —conducted 2,825 interviews in the local language with senior decision-makers in a sample of the largest companies in 62 countries and territories.

About EY’s Fraud Investigation & Dispute Services (FIDS) practice
Dealing with complex issues of fraud, regulatory compliance and business disputes can detract from efforts to succeed. Better management of fraud risk and compliance exposure is a critical business priority — no matter the industry sector. With our more than 4,200 fraud investigation and dispute professionals around the world, we assemble the right multidisciplinary and culturally aligned team to work with you and your legal advisors. And we work to give you the benefit of our broad sector experience, our deep subject matter knowledge and the latest insights from our work worldwide.