Corruption and bribery biggest fraud risk for Indian Cos

New Delhi, Aug 21 (UNI) An estimated 36 per cent of internal collusion with third parties and 29 per cent of corruption and bribery constitute the greatest fraud risks among Indian companies, an Ernst and Young's 9th Global Fraud survey report said today. ''The growing focus on cross-border expansion, high levels of growth with internal processes not keeping pace and large number of new employees joining the organisation are making most companies vulnerable to greater fraud risk in recent times,'' Ernst and Young Risk&Business Solutions National Director Sunil R Chandiramani said.

The survey conducted on the 'Fraud risk in emerging markets,' revealed that around 42 per cent of Indian companies believe that levels of fraud have increased in the past two years, with about 14 per cent of Indian companies admitting to experiencing significant fraud in the last two years.

This is a higher percentage vis-a-vis global findings wherein 27 per cent respondents indicated increasing fraud levels.

The survey found 14 per cent of Indian organisations have made a decision not to invest in an emerging market as a result of fraud risk assessment.

Only 14 per cent of the respondents considered financial statement fraud as the greatest fraud risk.

Among factors deemed important for determining the success of an organisation's approach to fraud prevention and detection, 70 per cent of the Indian respondents considered 'Internal Controls' and the 'Internal audit function' as the most important factors.

Only 24 per cent of Indian respondents compared to 59 per cent of respondents globally, viewed corporate security/ prevention and detection, corporate culture/ ethics, documented formal processes, legislation or raising employee awareness and training as important for determining success towards fraud prevention and detection.

The report said the introduction of new accounting standards in emerging markets and the move towards convergence with International Financial Reporting Standards (IFRS) could negatively impact a subsidiary's financial statements in some instances, thereby increasing the risk of financial statement fraud.

According to the report, 38 per cent of Indian companies do not have a formal or documented anti fraud policy, compared to 29 per cent of their counterparts in developed markets.

Around 75 per cent of respondents agreed that their organisation works with intermediaries or agents who are paid on a commission basis.

Significantly, 12 per cent of these companies do not have specific anti-fraud measures in place that apply to these third parties, and 68 per cent of Indian respondents said that they do not provide formal training to help employees understand and implement anti-fraud policies.

The effectiveness of any such communication is also suspect, as 70 per cent respondents admitted to not communicating the anti-fraud programmes in the local language.

More than one-third of the Indian respondents considered 'Internal control system' with 18 per cent, 'Special bribes/ corruption' with 8 per cent or 'Growing size of business/ employee base' with 8 per cent as the biggest challenges for their organisation in the next two years in relation to be the risk of fraud in emerging markets.

Around 25 per cent of the Indian respondents said the senior management had not identified and communicated their most significant fraud risk exposures to the board of directors.

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