India suffers from corporate fraud: Kroll

The outlook for the future is more worrisome, as about 92 per cent of Indian respondents have reported that the exposure to fraud is increasing and reported that their firms are highly or moderately vulnerable

The corporate frauds are on the rise in India, points out The Kroll Global Fraud Report 2015-16. About 80 per cent of the Indian executives responding to the survey said they were affected by fraud.

Corruption and bribery account for 25 per cent in India, which is higher than the global average of 11 per cent, and IP (intellectual property) theft is another category which shows 15 per cent spurt as against the world average of 4 per cent.

US-based Kroll, a corporate investigations and risk consulting firm, commissioned the Economist Intelligence Unit (EIU) to conduct a worldwide survey on fraud and its effects on business. About 768 senior executives participated in the survey from a wide range of industries. The respondents are from Europe (29%), North America (25%), Asia-Pacific region (24%), Latin America (10%) and Middle East/Africa (12%).

According to the survey findings, the biggest fraud threat to companies in India comes from within, the highest among the BRIC countries. The report says the highest incidence of fraud in four categories - corruption and bribery (in 25% of companies), regulatory compliance breach (in 20% of cos), IP theft (in 15% of cos) and money laundering (in 7.5% of cos).

Overall, about 49% of the respondents say that the companies are prone to the risk of threats like vendor, supplier or procurement fraud, while about 40 per cent are worried about increasing risk of corruption and bribery as they expand geographically into new territories.

Tommy Helsby, Chairman, Kroll, stated: "Much media attention is focused on external threats to companies, highlighted by high profile cyber attacks, but the evidence revealed in our report and our day-to-day experience tells a different story. The respondents indicate the greatest single cause of fraud is their own employees."

The whistleblowers are responsible for exposing about 41 per cent of the fraud incidents in the country. However, the report says that anti-fraud efforts can curtail the threat from within, as the employees who are aware of what the fraudsters are doing are the company's strongest defence. Interestingly, the report points out that about 45 per cent of Indian companies are being affected by frauds conspired by junior staff, whereas the senior staff’s role is just 25 per cent.

But the infamous example of 'Satyam accounting scam' shows that the fraud is not that possible without the complicity of promoters or directors. However, the analysts feel that most of the companies in India are promoter-driven and staff-infected fraud may be identified faster. According to Kroll, MD, South Asia, Reshmi Khurana: "Despite rising concerns, the companies are not investing in the appropriate anti-fraud strategies. Only 55 per cent of the companies in India have invested in vendor due diligence and only 28 per cent have invested in staff background screening." The report asked the corporates to strengthen the recruitment process to safeguard against insider fraud.

The report also suggested that the companies need to tighten their IT security, develop a strong whistle-blower policy and better understand how insider fraud is committed in their organisation. Thus, the outlook for the future is more worrisome, as about 92 per cent of Indian respondents have reported that the exposure to fraud is increasing and reported that their firms are highly or moderately vulnerable.

Type of Fraud India Global Average

Theft of physical assets 17.5% 22%

Vendor, supplier or procurement fraud 22.5% 17%

Information theft 7.5% 15%

Management conflict of interest 12.5% 12%

Regulatory or compliance breach 20%* 12%

Corruption and bribery 25%* 11%

Internal financial fraud 17.5% 9%

Misappropriation of company funds 5% 7%

Money laundering 7.5% 4%

IP theft 15% 4%

Market collusion 2.5% 2%

* Highest among the countries surveyed

By KVVV Charya