New Delhi: India is perceived as a fraud haven with over 75 per cent of the respondents to the KPMG survey considering undetected fraud as their highest concern followed by inadequacy of anti-fraud measures and unethical employee behaviour.
The dual impact of two concerns rated high by respondents, unethical behaviour of employees and inadequacy of anti-fraud measures, leads to an environment where both inclination and opportunity co-exist.
This could mean that organisations in India that remain passive in their approach to deal with fraud may be a perfect breeding ground for fraud, suggests the findings of the latest KPMG report on fraud.
Re-enforcing the point, over 80 per cent of the respondents accept that fraud is a problem in the corporate environment in India, and another 70 per cent believe that fraud in India will increase over the next two years.
From KPMG's previous survey in 2006, there has been a rise of approximately 54 per cent in the number of fraud victims.
"With the increase in the number of business transactions combined with the lack of effective monitoring, frauds are a real time threat for most corporates in India," said Deepankar Sanwalka, head, forensic services, KPMG India. "It comes as a surprise that even the larger companies operating in India do not have adequate risk management strategies. Soon companies operating in the Indian marketplace shall be under greater pressure to implement better practices in corporate governance, corporate disclosure and risk management".
The findings of the KPMG report suggest that the threat of fraud comes mostly from within the organisation.
A majority of the respondents believe that the employees pose the maximum threat to an organisation and the senior management as compared to other employees is more likely to commit fraud. The inherent responsibilities and trust associated with senior positions, ability to over-ride internal controls, internal knowledge and access to confidential company information that come with the managerial position create the risk that fraudulent acts may occur.
Next to employees, the maximum threat is perceived from suppliers and service providers. Hence, it is not surprising to know that the collusion between the two would be a major area of concern.
According to respondents, supplier kickbacks are the most prevalent type of fraud faced by organisations today. However, going forward, the maximum risk faced by respondents would be in the form of theft of intellectual property, or by frauds related to e-commerce and information technology.
Their fears are representative of the shift towards becoming a knowledge economy and growing dependence on information technology (IT) and e-commerce. Most of the organisations use IT to conduct business but surprisingly only 27 per cent of the respondents is using technology to proactively identify the red flags. This shows that internal fraud controls have not kept pace with the technology and can be improved considerable if organizations would use data driven technology in their fraud control frameworks.
The KPMG report highlights that typically, companies refrain from taking legal action against fraud perpetrators and prefer separating the perpetrator of fraud from the company (in case of employees) or stop dealing with them (in case of vendors and external parties).
Action taken by organisations greatly depends upon their outlook and tolerance towards fraud, as well as their appetite to deal with law enforcement and legal channels, should they choose to prosecute perpetrators.
The survey comprised respondents from across the industry and at different levels in the organizations. Close to 25 per cent of the respondents were at the level of an executive director, managing director or CEO. Approximately 30 per cent of the respondents were CFOs of firms.