Changing face of fraud in India

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CFO Connect


Arpinder Singh
Partner and National Leader, Fraud Investigation and Dispute Services
EY India

Economies around the world have been plagued with scams and fraud that have had a wide reaching impact on various areas ranging from organisational morale and financial performance, to corporate image. Why then, is there no fool proof method till date, to eradicate an evil that has lurked around for so long?

A recent EY study based on the India Fraud Survey 2012, points out that the ever-increasing use of technology in every sphere of business, is inadvertently leading to more sophisticated and complex frauds than before. This is thereby, increasing the challenges to regulators and business heads to counter such threats. Nearly three out of five respondents had reported that their companies have suffered at least one economic crime in the past year. The incidence was particularly high in fraud-prone tors like financial services, real estate, and telecommunications.

The top five fraud risks that emerged from the survey, that have the potential to pose threats to businesses in India are the following: Data or information theft and IP infringement; bribery and corruption; fraud perpetrated by senior management; vendor fraud or kickbacks; and regulatory non-compliance.

A new hazard 

Data or information theft has emerged as a new threat in the evolving risk landscape due to the unprecedented proliferation of Information Technology (IT) in the last few years. The unrestricted use of social media by employees exposes a company in a covert and sometimes in an overt manner to the risk of fraud. A vvy person, who may or may not be a seasoned fraudster, with little time and effort, can easily collate enough information about a company, its employees, and its clients, to use the information in a damaging manner.

Fraudsters are getting younger

Other fallouts of the increasing use of technology can be witnessed in the changing profile of a fraudster. The study shows that a typical fraudster today is identified as an internal employee, who is in his / her 30s, and is far from retirement. Such employees tend to be star performers with respect to financial targets, but not in compliance.

Younger employees are generally more tech savvy, thereby fulfilling the pre-requisite of advanced technical proficiency for initiating a fraud. The layoffs and pay cuts during the recession in 2007-2008, have not only created insecurity among employees but have also seriously mitigated overall corporate loyalty in India. The increasing pressures of image projection and the prospect of accelerated career growth can easily motivate employees to bend rules for reasons beyond financial need.

What makes chief executives lose sleep at night?

Bribery and corruption continue to be the biggest challenge for corporate governance, and the risk is compounded by the increasing enforcement of regulations and stricter penalties. What worries chief executives most is the global reach of anti-graft laws like the US Foreign Corrupt Practices Act (d the UK Bribery Act 2010.

In India, three most common reasons for bribery and corruption, as revealed by the respondents are: kickbacks to win or retain business, to get routine approvals from government agencies, and to influence people in making favorable decisions . In this scenario, the companies are challenged on how to compete for business, yet seek to be compliant with the FCPA and other broad based laws.

A well-thought-out and comprehensive anti-corruption compliance programme is the benchmark that leading companies are utilising to manage their corruption risks.

Staying protected

While it is not easy for companies to avoid fraud risks completely, a risk assessment of procedures and policies can help them to hedge against the risk of a contingent, uncertain loss, due to fraud.

The importance of regularly assessing and reviewing systems and processes for fraud risk cannot be emphasised more. Just like in a fire safety exercise, where you constantly assess your premises, systems and equipment, and also conduct regular drills, in fraud risk assessment, you have to recurrently review your policies, build in checks, and employ new and advanced technology to mitigate fraud risk.

Emerging trends in forensic technology

The threat posed by frauds perpetrated using technology, can be countered with the help of technology only. Some fraud prevention and detection tools are -

  • Software for continuous monitoring of business transactions
  • IT-based tools for retrospective identification of fraudulent payments or other abusive activity
  • Software for continuous monitoring of business communications (that is, key words within emails to addresses external to the company)
  • IT-based tools for identification of unethical behavior based on social network analysis Some recent buzz words in the area of data analysis are keyword searching, concept clustering, communication pattern analysis, and text analytics, which can each progressively contribute valuable insight into aspects of an investigation.


Although a company cannot be 100 per cent secure against unknown threats, a certain level of preparedness can go a long way in countering fraud risks, limiting damages, and protecting reputation. Today, we see a number of companies wanting to incorporate proactive fraud risk management in their companies as compared to a year ago. This is an encouraging sign, which indicates a brighter future for corporate governance in India.