Local cos vulnerable to frauds: KPMG

KOLKATA: Implementation of stringent accounting norms and a tough regulatory environment have helped curb accounting and financial frauds in Indian companies to a large extent in recent years.

Yet, according to a group of internal auditors, local companies remain vulnerable to frauds and run the risk of losing a significant part of their revenues.

Multinational firm KPMG has surveyed 196 CEOs of local corporations and found that nearly 60% respondents agreed that they have no policies and procedures to counter corporate espionage. While 14% respondents said senior executive did not have the experience to identify fraud indicators during financial result reviews, 10% drew attention to the absence of a system to report frauds.

These were some of the issues discussed at a seminar organised by the Institute of Internal Auditors here on Friday. Presenting a snapshot on fraud prevention, KPMG’s assistant manager (risk advisory services) Arijit Chakraborty said: “There is a lack of awareness on fraud and misconduct indicators when auditors review financial and management information.”

He felt that the scope of internal audit has grown manifold as auditors increasingly need to use investigative tools apart from normal auditing techniques to locate the genesis of fraudulent activity, especially to prevent it. Fraud is a significant business risk. It affects corporates image, reputation, investor confidence and shareholder value.

“Studies show a lack of strong internal controls is a key factor in fraud-related losses, and that employees are responsible for more than 70% of all business fraud,” according to Control Solutions, a provider of technology risk and control solutions for business and technology management. But it is difficult to hazard a guess on annual losses due to frauds in India. According to Control Solutions, annual losses from fraud in the US barely topped $600 billion.