The Hindu Business Line : Frauds real time threat to most companies, says KPMG study

“Soon companies operating in the Indian marketplace shall be under greater pressure to implement better practices in corporate governance, corporate disclosure and risk management”.

Our Bureau

New Delhi, March 18

India is perceived as a fraud haven with over 75 per cent of the respondents considering fraud remaining undetected as their highest concern followed by inadequacy of anti-fraud measures and unethical behaviour of employees, according to a survey by KPMG.

Dual impact

The dual impact of 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 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. It comes as a surprise that even the larger companies operating in India do not have adequate risk management strategies,” Mr Deepankar Sanwalka, Head Forensic Services, KPMG India, said.

He added “soon companies operating in the Indian marketplace shall be under greater pressure to implement better practices in corporate governance, corporate disclosure and risk management”.

Senior management

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.

supplier kickbacks

According to respondents, supplier kickbacks is the most prevalent type of fraud being faced by the 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 IT.

The report highlights that typically, companies refrain from taking legal action against fraud perpetrators and prefer separating the perpetrator of fraud from the company (employees) or stop dealing with them (external parties).

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