Fraud big concern for India Inc: KPMG

Undetected fraud within companies is the highest concern of corporate India. India is perceived as a fraud haven with over 75% respondents to a KPMG survey considering fraud remaining undetected as their highest concern followed by inadequacy of anti-fraud measures and unethical behaviour of employees.

The dual impact of the two concerns 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.

Over 80% of the respondents accept that fraud is a problem in the corporate environment in India, and another 70% believe that fraud will increase over the next two years. There has been a rise of approximately 54% in the number of fraud victims from KPMG’s previous survey in 2006.

Deepankar Sanwalka, head, forensic services, KPMG India, said: "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. 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. Majority of the respondents believe that employees pose the maximum threat to an organisation, and 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.

According to respondents, supplier kickbacks is the most prevalent type of fraud being faced by the organisations today. The maximum risk faced by respondents in the future would be in the form of theft of intellectual property or frauds related to e-commerce and IT.

Most organisations use IT to conduct business but surprisingly only 27% respondents use technology to proactively identify the red flags. This shows that their fraud controls have not kept pace with technology and can be improved considerably if organisations would use data-driven technology in their fraud control frameworks.