India is a haven for fraud, says new study

NEW DELHI, INDIA: Terming the country as a "fraud haven" with about 60 percent of the firms having detected frauds in past two years, global consultancy major KPMG, said that India Inc is still unprepared to handle this menace. 

Making the situation even worse, at least five per cent companies have had losses exceeding Rs 10 crore and more than double of them have estimated the hit on their bottom lines in the range of Rs 1 to Rs 10 crore, KPMG said citing its “India Fraud Survey Report 2008.”

According to the survey, over 70 percent of companies believe that fraud in India would further increase in next two years, while over 80 percent respondents recognised fraud as a problem in the corporate environment in the country.

Indicating about 54 per cent rise in the number of fraud occurrences since the previous survey in 2006, about 60 percent of respondents confirmed having experienced fraud at their companies, as against just 39 percent two years ago.

Quantum of loss

While noting that actual cost of fraud to business was difficult to estimate as not all are discovered, KPMG said that 31 percent of those surveyed suffered losses of Rs 10 lakh to Rs 1 crore, while 11 percent put the losses at Rs 1-10 crore and another five percent at more than Rs 10 crore. However, it was less than Rs 10 lakh for about 53 percent.

The financial services sector has retained its position as the most susceptible to frauds, while real estate and infrastructure surpassed IT and ITeS as the second most risky business in this regard, the survey found. The report further pointed out that threat of fraud comes mostly from within the organisation. Majority of those surveyed felt that “employees pose the maximum threat to an organisation and the senior management is more likely to commit fraud as compared to other employees.”

Further, according to the survey, over 75 percent of companies believe that fraud remaining undetected is their biggest concern, followed by inadequacy of anti-fraud measures and unethical behaviour of their employees.

Dual impact

KPMG said the dual impact of two concerns, 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,” it added.

KPMG said that over 80 percent of respondents believed that corporate sector pay bribes or make facilitation payments to do business in India. However, 60 percent did not have adequate knowledge about anti-corruption laws. Among the respondents, close to 25 percent were at the level of an Executive Director, Managing Director or CEO, while 30 percent were CFOs of companies. After employees, the maximum threat is perceived from suppliers and service providers, KPMG said.

Source: PTI