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Cos feel frauds are 'inevitable cost' of doing biz: KPMG

Last Updated: Monday, December 3, 2012 - 16:31

New Delhi: Corporate frauds in India have increased in the past two years and companies consider them to be inevitable cost of doing business, says a survey.

This trend is "dangerous" as it could lead organisations to have a tolerant approach towards fraud, said the Global consultancy KPMG's biennial, 'India Fraud Survey 2012', released on Monday.

It revealed that many companies are setting aside some amount of their turnover taking into account possible frauds, leakages or theft.

In the last two years, there has been a substantial increase in the incidence of frauds. "Close to 55 percent of respondents indicated that their organisations experienced fraud in the last two years vis-a-vis 45 percent in 2010 edition of our survey," KPMG said.

The findings come at a time when some high profile corporate frauds such as the one related to Reebok have come to light.

About 71 percent of the respondents felt that frauds are an inevitable cost of doing business, the report said.

Among the respondents, 80 percent are those who stated that they had experienced fraud in the last two years. "Indian companies outnumbered multinational firms in this view," it added.

The growing pressure to perform in companies amid tough economic conditions more often leads to situation that results in frauds, Rohit Mahajan, Partner and Co-Head (Forensic Services) at KPMG in India, said.

"The futuristic frauds identified rely on technology and allow fraudsters to work in groups to leverage their full might. Irrespective of size, sector and operations, every company was vulnerable," Mahajan noted.

Around 293 companies, including public sector entities, participated in the survey conducted in June this year.

As many as 94 percent of the respondents felt that frauds have become more sophisticated.

"Bribery and corruption (83 percent) is perceived to be a major concern followed by e-commerce and other cyber related frauds (71 percent) and diversion/theft of funds or goods (65 percent)," the survey said.

Cyber crime, intellectual property fraud, piracy and counterfeiting, and identity theft have been identified as the key fraud risks of the future.

Even though many respondents were aware of such frauds, they had limited knowledge about the way in which "these frauds manifest themselves or how organisations could tackle them", it said.

As per the survey, "vendors/agents" are most susceptible to commit fraud, followed by "management employees (senior managers and above), non-management employees (managers and below), business associate and customer.

Financial services and information and entertainment sectors have been identified as most vulnerable segments prone to fraud.

KPMG noted that greater awareness of fraud and its impact can result in companies becoming more sensitive to noticing frauds, which otherwise tend to go unnoticed or are deliberately overlooked.

"While the enforcement action in India is not swift and decisive enough in comparison to our global counterparts, we are still striving to make that change and small steps in that direction have already been taken," the report said.

When it comes to the mode of detecting frauds, the most effective way was found to be whistle-blower hotlines followed by internal audits, data analytics and IT controls among others.

Going by the findings, frauds are becoming all pervasive, encompassing multiple locations, involving various stakeholders with increasingly complicated modus operandi adopted by the perpetrators.


First Published: Monday, December 3, 2012 - 16:31
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