Corporate fraud: 87% Indian CEOs warn of uncertainty amidst Modi's clean governance "promise"

By Jag Jivan
A top international consulting firm, Deloitte, involved in “a multi-skilled, multi-disciplined firm, offering clients a wide range of industry-focused business solutions”, has warned of sharp rise in fraud cases over the coming years. Suggesting that, with the rise of new business models backed by new technology, fraud has spawned new variants, a Deloitte report, “India Fraud Survey”, has said, around 56 per cent of 400-odd survey respondents, all of them chief executive officers from across India, believe that “fraud will continue to increase” in the two years, and another 31 per cent said they were “uncertain” about what may happen.
The report believes, the frauds will continue despite the fact that the new Narendra Modi government has “managed to improve business sentiment and is giving confidence to investors to make fresh investments across several key sectors such as infrastructure, manufacturing, retail, education, healthcare, and insurance.”
Even as claiming that the Modi government has also taken “a strong position on the perceived deterrents to investment and growth, such as bribery and corruption, and other unethical business practices, by promoting good governance and enacting legislations to curb such malpractices”, Deloitte says, the “stakeholders” are doubtful, and are “closely observing how these measures will translate into growth for the Indian economy.”
In fact, it believes, several of the laws enacted by the previous UPA government can become handy in the fight against fraud. These include “the Prevention of Corruption Amendment Act 2011, the new Companies Act, 2013, The Whistleblowers Protection Act, 2011, The Right to Information Act, 2005 (RTI), The Information Technology Act 2000 (IT Act), and The Prevention of Money Laundering Act, 2002 (PMLA).”
UK-based, with offices across eight major Indian cities, the Deloitte survey has found that financial services, real estate and infrastructure, and social/government sector were the “most vulnerable” to fraud, and three top frauds experienced by them were “diversion/ theft of funds/ goods, bribery and corruption, and regulatory non-compliance.” And who are the biggest fruadsters? The top firm notes, senior management was “identified as most susceptible to commit fraud, whereas external parties were least likely to commit fraud.”
Deloitte says, “Despite the extensive adoption of technology by organizations to build global business models, corporate India continues to face challenges in mitigating traditional fraud schemes… Over 50 percent of survey respondents felt that procurement, sales and distribution functions were most vulnerable to fraud, indicating that greater business exposure to external stakeholders such as vendors, suppliers, customers, and distributors could significantly increase the risk of fraud.”
Pointing out that most chief executive officers have “limited awareness about technology-led new frauds, report says, 69 per cent of the CEOs were “unsure” about “social media fraud risk”, as there felt there was” inadequate guidance in legislation to deal with it. Then, 60 per cent CEOs felt e-commerce was not risky, and “appeared not have comprehensive processes within their organizations to its mitigate.” Then, 96 per cent “claimed their organizations had not suffered cloud computing fraud”, and 57 per cent were “unaware of any review compliance and security policies pertaining to cloud computing.”
Providing its view on the matter, Deloitte says, there is, in fact, “insufficient mechanisms to prevent and detect fraud, as well as limited enforcement of internal controls”, and these are “likely to be the reasons that organizations continue to experience traditional fraud.” It regrets, corporate bodies have “considered bribery as the ‘cost of doing business’, and hence demonstrated a degree of acceptability towards this practice.”
The respondents were asked to rank, on a scale of six, which could be the best ways to prevent fraud. Deloitte found that an average rating of 3.7 out of 6 was received by whistleblowing hotline, 3.1 by statutory audit, 4.0 by internal audit review, 3.2 by accident, 3.5 by IT control. Deloitte said, “While organizations have made some investments towards mitigating the risk of fraud, the specific measures adopted appear insignificant in light of the requirements of the fast changing regulatory environment.”

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