Corporate fraud reports a 45 per cent increase in India: ASSOCHAM-Grant Thornton; companies related to real estate and infrastructure sector (52%) are considered to be the most vulnerable

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Corporate fraud reports a 45 per cent increase in India: ASSOCHAM-Grant Thornton

15 January 2015


Dian corporate frauds arising out of corruption, money laundering, tax evasion, window dressing, financial reporting fraud and bribery have increased by over 45% in the last two years due to weakness in internal controls, scarcity of resources at disposal and over-riding powers of the senior management, according to an ASSOCHAM-Grant Thornton study. The joint survey by ASSOCHAM and Grant Thornton revealed that the companies related to real estate and infrastructure sector (52%) are considered to be the most vulnerable to fraud related incidences followed by financial services (34%), telecom (5%), manufacturing (3%), electronics and IT/ ITeS (2%), Hospitality and tourism (2%). Over 65% of our survey respondents agreed to witness a rising trend of wilful defaults and frauds. The survey observed that the lurking risk of frauds has been dissuading global companies from investing in India, points out the survey. Procurement frauds, payrolls frauds, asset misappropriation, financial misstatement, corruption, bribery, tax evasion, piracy, intellectual Property (IP) fraud, kickbacks, accounting frauds, counterfeiting, white-collar crimes etc are swiftly threatening business in both the private and public sectors, adds the report.

While releasing the ASSOCHAM paper DS Rawat, Secretary General ASSOCHAM said, besides the financial losses, businesses that are victims of fraud also suffer long term negative impact on their brand and reputation. Corporate wrongdoing inevitably ends up creating a vicious cycle that hurts shareholders value, damages investor’s trust, leads to locking-up of capital in litigation, and ultimately causes wider financial market instability; eventually becoming part of much larger problems.

Over 66% of the respondents highlighted their concerns about the impact of frauds on their brand and market reputation. Further, 26% of respondents were concerned about the financial losses that businesses suffer as a result of frauds. Intentional fraudulent financial reporting, information manipulation, theft of inventory etc are among the common types of misconducts that can result in financial losses for companies, adds the joint report.

Around 71% of survey respondents believed that incidents of fraud would continue to rise over the next five years, and highlighted bribery and corruption, and regulatory noncompliance as the top frauds they had experienced in the past two years, highlighted the paper.

A majority of the respondents (69%) consider strong internal controls as the most effective mitigation strategy for managing operational and financial risks related to frauds. Others like setting policies and procedures for reporting fraud- whistle blowing and independent and /or external audits.

A staggering 40% of our survey respondents have pointed to the lack of penetration of employee awareness programs in their organizations. Besides, over 15% respondents are unaware of such a training that could help detect warning signs.

Maintaining vigilance against corruption, money laundering and/ or bribery needs to be a key focus for Indian corporate, added DS Rawat according to an ASSOCHAM statement.

More than 68% of the respondents to the survey stated that damage to their organizations’ brand and market reputation was the biggest impact of fraudulent activities.

The exchequer suffers massive losses each year, usually running into several crores of rupees because of an array of frauds. As per the reports from the RBI, during the period 2012-13, 29,653 cases of fraud were detected in India’s nationalized banks, totaling Rs. 24, 828 crores, points out the paper.


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