What triggers corporate fraud

Kurmanath KV Hyderabad | Updated on December 07, 2018 Published on December 07, 2018

A Deloitte survey assesses the contours of fraud, reasons for it and soft spots

Fraud in the corporate sector is often hushed up. Not many corporates seek law enforcement agencies, try to identify the problem areas and tackle the issues themselves. Research firm Deloitte has conducted a survey to get a sense of the size of the fraud, reasons and vulnerable areas or weak links.

That about half of the respondents indicated losing more than Rs 10 lakh in fraud losses in the recent past shows the gravity of the challenge. But in most cases the fraudsters are allowed to resign in lieu of filing a legal case. Only a third of the respondents suggested that they took legal action against the fraudster.

The survey captured 439 responses, with two-thirds of them having decision-making roles. The survey covered top executives in corporates in all major sectors. About 70 per cent of the respondents belonged to organisations with over Rs 250 crore turnover.

The third edition of the India Corporate Fraud Perception Survey (2018) has found three top reasons for fraud - lack of an efficient internal control or compliance system, diminishing ethical values, and senior management override of controls.

And, the top weak links or soft spots are identified as vendor, customer or business partner favouritism, inventory pilferage and diversion or theft of funds.

"Only 17 per cent of the respondents indicated that their organisation had experienced bribery and corruption in the recent past. This may be a result of better internal controls instituted to prevent bribery," the report points out.

Key actors

The survey found that junior and middle management employees were identified as being most likely to commit fraud. “There is greater sensitivity to the reputational damage that corporate fraud, misconduct and non-compliance can cause. Organisations are recognising that fraud is a result of internal systemic loopholes that can be plugged by stronger controls and limited overrides," Nikhil Bedi, Partner and Leader (Forensic, Financial Advisory Services) of Deloitte India, has said.

Technology help

The report said data mining tools, analytics and reports generated by the ERP system, besides traditional statistical analysis are helping in preventing internal fraud.

Social network analysis, sentiment analysis, data visualisation, interactive dashboards, machine learning, robotic process automation and artificial intelligence are also helping corporates keep tabs on pilferage.

Published on December 07, 2018

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