Fear of fraud rises in India Inc: Survey

MUMBAI: Green shoots may be visible in global economies, stock markets may have picked up but so have fraud statistics in the world of business. The seventh edition of the Global Fraud Report released by Kroll, a corporate investigation firm, reveals that 71% of those surveyed in India feel that their exposure to fraud has increased, up from 67% last year. On the whole, 70% of those polled globally feel that they suffer from at least one kind of fraud, which is pretty much in line with the Indian statistics. 

However, the Indian figures are disturbing because its far above global and BRIC nation averages when it comes to specific types of fraud such as theft of physical assets, corruption and bribery, internal financial fraud and information theft. A number of domestic and international companies are therefore delaying investments in India because of risks related to corruption and bribery. 

Insider fraud is particularly rife in India compared to other BRIC countries. Of those Indian companies which suffered from fraud in the last year and where the perpetrator was known, 89% of respondents indicated that the perpetrator was an insider of some sort. Interestingly 69% of respondents indicated that junior employees appear to be the leading culprits, which is far higher than that experienced in Brazil, Russia and China. The findings are contained in a study commissioned by Kroll with the Economist Intelligence Unit of more than 901 senior executives worldwide, including 51 in India. 
“This poses a substantial threat to India Inc. This combined with a tough business environment, means that companies must continue to create a strong and well-organized internal control system to prevent fraud and develop best practices to respond to fraud when it arises,” said Reshmi Khurana, head of Kroll in India. 

According to the latest findings, 69% of those polled in India continue to be hit by fraud, categorised under seven heads. These include theft of physical assets; corruption and bribery; internal financial fraud; and information theft amongst others. 

While Indian companies have always operated against the backdrop of a high-corruption environment, 37% of respondents acknowledge that their firms have become even more vulnerable to corruption and bribery related fraud, up from 32% last year and well above the survey average of 20%. 

Making matters worse, high staff turnover is the second most common factor increasing fraud exposure in India as cited by 29% of respondents. This means that 51% of the respondents who said that they are not planning to invest in staff background checks, should reconsider, said the report. 

Another interesting finding from the survey was the incidence of fraud committed by vendors and suppliers in India. About 40% of companies surveyed indicated that a vendor or supplier played a part in the fraud; this was above the global average and other BRIC countries. 

“Even though India leads in vendor fraud and fraud undertaken by junior employees, only 45% of respondents in India plan to increase investment in vendor, partner and client due diligence,” said Khurana. 

There has been a surge in fraud for financial services and it remains one of the most affected industries, say 75% of those polled. Also almost half of the respondents indicated that fraud was discovered via internal audit, substantially higher than the global average of 35%. Indian companies experienced an average 1.4% of revenue loss due to fraud, increasing 1.2% from last year. 

 
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