Forget inflation or expensive licences, Corporate India has now dubbed rising fraud as an inevitable cost of doing business, with the last two years seeing a substantial increase in the incidence of fraud.

This, according to a KPMG survey, is dangerous as it could lead to organisations having a tolerant approach towards fraud. The survey defines fraud as cyber crime, bribery, intellectual property theft and counterfeiting.

“It is surprising to notice that 71 per cent of the respondents think of fraud as an inevitable cost of doing business. This could mean that companies are not investing enough in fraud risk management. In such a scenario, the burden would fall to regulatory bodies to ensure that appropriate action is taken,” said the Indian Fraud Survey 2012.

Bribe compensation

Ironically, the survey goes on to reveal that companies often compensate for potential bribe payments by setting aside parts of their turnover for it. Monetary payments shelled out through a third-party are often labelled as ‘consultancy charges’, while bribes paid through employees are listed as ‘general expenses’ on the books.

Unsurprisingly, Indian companies outnumbered multi-national firms in the 80 per cent of respondents who stated that they had experienced fraud in the last two years.

Close to 55 per cent of respondents indicated that they had experienced fraud, when compared to 45 per cent in the 2010 edition of the survey.

Sophistication at its best

“The unwillingness of India Inc. to see fraud as a strategic risk poses a grave threat, as potential frauds slowly become more sophisticated.

The frameworks that were sufficient to mitigate simple frauds are no longer effective against these sophisticated frauds,” said Rohit Mahajan, Partner and co-Head, Forensic Services, KPMG in India.

The current methods that companies employ to deal with emerging futuristic fraud, such as cyber crime and intellectual property and identity theft, are somewhat akin to “hunting an elephant with a water pistol”, according to the survey.

“A one-size-fits-all framework cannot help mitigate emerging fraud risks. Companies need to be aware of the various possible modus operandi, perpetrators and gaps in internal controls. Only then can they develop an effective risk mitigation framework,” Mr. Mahajan added.

Varied industries

The survey was conducted by circulating an online questionnaire, and received responses from 293 CXOs from varied industries.

The respondents represent both Indian and multi-national firms with an annual turnover in the range of Rs. 500 crore to Rs.10,000 crore.

Keywords: KPMG survey