India, Inc.'s global hopes may stumble
The levels of fraud are far higher in India compared to global levels, says an Ernst and Young study.
By PTI |
NEW DELHI: As India, Inc. steps up the gas to expand in the global arena, it faces the risk of stumbling on frauds, the levels of which were far higher compared to global levels, according to international consulting firm Ernst and Young.
A survey by E&Y in emerging markets has revealed that fraud levels in India are considerably higher at 42 per cent than the global levels of 27 per cent.
"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 National Director, Risk and Business Solutions, Sunil R Chandiramani said.
The study said as many as 42 per cent of the Indian companies believe that internal collusion, corruption and bribery have skewed up fraud levels in India.
About 14 per cent of Indian companies also admitted experiencing 'significant' fraud in the last two years.
The survey said the actual number may be higher due to various reasons, including non-disclosure of fraud and non-discovery of significant frauds among others.
As many as 36 per cent of the responding companies considered internal collusion with third parties as the greatest fraud risk, followed by corruption and bribery, considered as a fraud threat by 29 per cent, it said, adding only 14 per cent of the respondents considered financial statement fraud as the greatest fraud risk.
While corporations certainly need to be aware of the risks associated with bribery and corruption, the survey suggests that companies may be underestimating the threat of financial statement fraud, which runs a high risk of being perpetuated at international subsidiary locations.
The introduction of new accounting standards in emerging markets and the move towards convergence with International Financial Reporting Standards (IFRS) could negatively impact subsidiary's financial statements in some instances, thereby increasing the risk of financial statement fraud, it said.
Around 70 per cent of the respondents felt that internal controls and the internal audit function as the most important factors for fraud prevention and detection.
A survey by E&Y in emerging markets has revealed that fraud levels in India are considerably higher at 42 per cent than the global levels of 27 per cent.
"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 National Director, Risk and Business Solutions, Sunil R Chandiramani said.
The study said as many as 42 per cent of the Indian companies believe that internal collusion, corruption and bribery have skewed up fraud levels in India.
About 14 per cent of Indian companies also admitted experiencing 'significant' fraud in the last two years.
The survey said the actual number may be higher due to various reasons, including non-disclosure of fraud and non-discovery of significant frauds among others.
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As many as 36 per cent of the responding companies considered internal collusion with third parties as the greatest fraud risk, followed by corruption and bribery, considered as a fraud threat by 29 per cent, it said, adding only 14 per cent of the respondents considered financial statement fraud as the greatest fraud risk.
While corporations certainly need to be aware of the risks associated with bribery and corruption, the survey suggests that companies may be underestimating the threat of financial statement fraud, which runs a high risk of being perpetuated at international subsidiary locations.
The introduction of new accounting standards in emerging markets and the move towards convergence with International Financial Reporting Standards (IFRS) could negatively impact subsidiary's financial statements in some instances, thereby increasing the risk of financial statement fraud, it said.
Around 70 per cent of the respondents felt that internal controls and the internal audit function as the most important factors for fraud prevention and detection.
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Compared to 59 per cent of respondents globally, 24 per cent of in India 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, it said.
"Many organizations are still not considering appropriate fraud risks while designing their controls systems and procedures. Though robust internal controls remain the first line of defence against fraud, anti-fraud controls are not always integrated under an anti-fraud programme and monitored for compliance," Chandiramani said.
According to the report, a high percentage of Indian companies, around 38 per cent, do not have a formal or documented anti fraud policy when compared to 29 per cent of the respondents in developed markets.
As many as 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.
A large majority, 68 per cent of the respondents said 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 of the respondents admitted to not communicating the anti-fraud programmes in the local language.
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