Do MNCs perceive us as fraudsters?

KOLKATA: When it comes to fraud, the popular view is that chances of this happening in emerging markets are much more than in developed ones.

However, the Ernst & Young’s 9th Global Fraud Survey has revealed that 75% of the MNCs interviewed, were victims of fraud that occurred in developed economies. The survey sampled about 600 companies from across the Americas, Europe, Africa and Asia and it dwelt extensively on the various aspects of fraud and internal controls that are in place to prevent them.

Only 32% said they were duped in emerging markets. Despite this, however, almost 60% of MNCs somehow seem to feel that the possibility of frauds hitting them is far more in developing economies, although almost a quarter of the sample size confessed that they did not have proper anti-fraud measures in place to thwart such possibilities when they considered investment in a new market.

A majority of them also acknowledged that the controls and policies presently in place, may not be enough to prevent bribery, kickbacks, collusion and other types of fraud. But they believed that internal controls within their organisations were sufficient to identify and investigate such frauds promptly when and if they took place. “

Over 40% of the sample did not have a formal or documented anti-fraud policy, a percentage that has barely changed since ’03,” the report said. Evidently, the focus on internal controls over financial reporting has not yet resulted in the adoption of formal anti-fraud policies.

Most organisations, however, acknowledged that they don’t communicate their anti-fraud stance and policies to agents, intermediaries and joint venture partners. “Robust internal controls remain the first line of defence against fraud for companies in all markets, but anti-fraud controls are not always integrated under an anti-fraud programme or separately monitored for operating effectiveness,” the E&Y survey mentioned.

One in five organisations decided against investing in an emerging market after having conducted a risk assessment with respect to fraud. But, companies have changed their reasons for investigating fraud. In the past, they tried to assign blame and recover losses. Today, nearly half the respondents said they were doing so only to identify and improve weaknesses in controls.