Indian companies may have to tighten their recruitment norms to conduct proper pre-employment checks and “integrity due diligence” on employees, going by the rising graph of white-collar crime committed by top officials.
The seventh biennial fraud survey, conducted by audit and consulting firm KPMG India, reveals that 42% of companies in India have experienced fraud committed by top management officials such as board members, directors and even managing directors.
The findings of the report, released on Tuesday, suggest that the inherent responsibilities and trust associated with senior positions and their ability to access classified company information create the risk of fraudulent acts.
FRAUD METER (Graphic)
The number of white-collar crimes has risen dramatically. Of the 1,000 companies covered by the survey, 60% said they have experienced fraud. The last survey, carried out in 2006, had found 39% of firms complaining on this count.
The survey, carried out by KPMG’s forensic wing in India, covered leading Indian firms from the public and private sectors. The respondents included chief executive officers, chief financial officers, internal auditors, chief compliance officers and other senior management officials.
Indian companies, according to the study, remain highly vulnerable to fraud in the absence of “effective internal control mechanism” that can identify and deal with such crimes. The report suggests that 75% cases of fraud remain undetected and that more than 60% of Indian firms have inadequate anti-fraud measures.
“With the increase in the number of business transactions, combined with the lack of effective monitoring, frauds are a real-time threat for most corporations in India. It comes as a surprise that even the larger companies operating in India do not have adequate risk management strategies,” said Deepankar Sanwalka, head, forensic services, KPMG India.
The KPMG report suggests that Indian firms will have to be more vigilant and ensure good corporate governance, as 70% of firms believe fraud in India will increase over the next two years.
KPMG also finds the reluctance of companies to report incidence of fraud alarming. Almost 80% of Indian firms don’t take legal action in order to protect their reputation.
The frauds covered in the survey also include anti-bribery compliance. Almost 84% of the companies strongly believed that businesses in India pay bribes to facilitate work.
India scores poorly on corruption and bribe payments in the list of organizations such as Transparency International, which ranks countries based on corruption and propensity to demand bribe. India’s corruption perception index score was 3.5 in 2007 on a scale of 0-10, and the bribe-payers index score was the lowest.