India Ranks 3rd in the World in Global Fraud, Just Behind Colombia and Sub-Saharan Africa
NEW DELHI: The Global Fraud Report 2015-16 by risk mitigation consultancy Kroll, with the aid of the Economist Intelligence Unit, found that the perceived prevalence of fraud in India is the third highest (80 per cent) among all countries and regions surveyed across six continents. Only Colombia (83 per cent) and Sub-Saharan Africa (84 per cent) surpass India.
An overwhelming 80 per cent of companies polled in India said they had been victims of fraud in 2015-16, up from 69 per cent in 2013-14, according to a survey report.
The report's authors observed that while the incidence of fraud was on the rise globally, a combination of a lack of preventive measures at Indian companies and a poor legal system had resulted in 92 per cent of the respondents saying they had witnessed an increase in exposure to fraud.
The India-centric data in the report shows that the highest incidence of fraud as reported by Indian companies is due to what the report terms ‘corruption and bribery’.
A quarter of the respondents said they registered losses due to this. On average, the worldwide survey found that only 11 per cent of the companies reported corruption and bribery as a source of revenue loss.
The second-highest fraud-related source of loss of revenue in India is vendor, supplier or procurement fraud, which affected 23 per cent of the companies, which is also higher than the global average of 17 per cent.
Interestingly, the 2013-14 survey found that the highest source of fraud-related revenue loss for Indian companies came from theft of physical assets or stock (33 per cent) and information theft, loss or attack and corruption and bribery were on a par (24 per cent).
The latest report also finds that the biggest factors exposing Indian companies to fraud have changed over the last few years. Where the previous report pegged IT complexity as the biggest contributor to fraud, the 2015-16 report says the new drivers of fraud are high employee turnover and cost restraints over pay.
“While companies in India are willing to spend to improve their level of anti-fraud protection, it appears that such funds are not being invested appropriately,” the report's authors said. “For respondents that had identified the perpetrator, 59 per cent indicated that junior employees were leading players in at least one such crime.”
“Despite these vulnerabilities and the high proportion of fraud perpetrated by insiders, only 28 per cent of companies in India invest in staff background screening and only 55 per cent invest in vendor due diligence,” they added.
Compounding the problem of inadequate preventive measures is the issue of what happens once fraud has been detected. Often, the legal system in India is not quick enough to make it worth the companies while to go to court, the report's authors said.
“First, the bar is set high for what constitutes evidence of fraud in a court of law in India; second, once in court, it can take years to settle disputes, by which time the value of the investment may have significantly eroded,” said Reshmi Khurana, MD and head of Kroll’s India office. “These factors explain why private equity (PE) investors are usually not keen to go to court immediately following a dispute.”
The Annual Global Fraud Survey, commissioned by Kroll and carried out by the Economist Intelligence Unit, polled senior executives worldwide from a broad range of industries and functions 2015-16. Where Economist Intelligence Unit analysis has been quoted in this report, it has been headlined as such. Kroll also undertook its own analysis of the results.
As in previous years, these represented a wide range of industries, including notable participation from Financial Services and Professional Services as well as Retail, Wholesale and Distribution; Technology, Media and Telecommunications; Healthcare, Pharmaceuticals and Biotechnology; Transportation, Leisure and Tourism; Consumer Goods; Construction, Engineering and Infrastructure; Natural Resources; and Manufacturing.
Respondents were senior, with 50% at the C-suite level. Over half (51%) of participants represent companies with annual revenues of over $500 million. Respondents this year included 29% from Europe, 25% from North America, 24% from the Asia-Pacific region, 10% from Latin America and 12% from the Middle East/Africa. This report brings together these survey results with the experience and expertise of Kroll and a selection of its affiliates. It includes content written by the Economist Intelligence Unit and other third parties.
Global commitments to combating corruption and enhanced cooperation by international law enforcement agencies have increased the pressure on companies to mitigate fraud, bribery and corruption risks. There is also a growing consensus that prosecuting individual executives, and increasing government efforts to apply international standards on the transparency of company ownership will help tackle these issues.
In this context, our 14th Global Fraud Survey provides powerful insights from over 2,800 senior executives in 62 countries and territories across the world. It shows that while many businesses have made significant progress in tackling fraud and corruption, there remains a persistent level of unethical conduct - 39% of respondents consider bribery and corruption to happen widely in their country, with almost half able to justify unethical behaviour to meet financial targets.
The report explores these issues in detail and provides insight as to how businesses can take steps to minimize the risk of corruption in their operations. It also provides specific regional insights in Africa, Brazil, China, Eastern Europe and India following interviews conducted by EY Partners with executives from leading companies about the survey’s findings.
(Professor PK Vasudeva is retired senior professor of International Trade)