Indian firms emerge as global leaders in theft, piracy, corruption, says fraud and risk report

With India making headlines for positive news, here is something unpleasant. The country has witnessed the highest incidence of fraud with 89 percent of executives reporting their companies were victim to at least one instance over the past 12 months, up from 68 percent in 2016, according to Kroll Annual Fraud Report 2017-18.

The country emerges on the top in frauds in three categories - Theft of physical asset or stock (40 percent), IP theft, piracy or counterfeiting (36 percent) and corruption and bribery (31 percent). The percentage of respondents affected by fraud increased significantly by 21 percent in 2017 to 89 percent while the global average this year is 84 percent. In five of the 11 categories in the report, there was an increase in percentage of respondents affected by fraud indicating that risk of fraud is both widespread and in different forms.

Over the last six years, fraud rates have been rising globally unlike 2017 in India. It was an ‘abnormal’ trend, said Tarun Bhatia, Managing Director, Kroll South Asia, referring to the low incidence of fraud. “The reason for lesser number of cases was because awareness of internet fraud was very low coupled with the lack of registering police complaints in case of frauds. There isn’t much awareness about laws of information security yet,” he said. India is still caught with hardware malaware, anti-virus etc while there is low awarenss about cyber security. What we need to focus on to avoid cyberfrauds is to train people, teach them not to share information and to be careful while using technology and sharing information on social media, Bhatia said.

At a time when the Prime Minister is inviting global firms to invest in India, the survey reveals a disturbing trend where it found joint venture (JV) partners as common perpetrators of fraud incidents in India over the past 12 months.

Around 45 percent respondents named JVs as the primary perpetrators. This is a shift from past year’s finding when current and former employees were the main perpetrators of fraud within a company.

“One of the reasons for this is that most companies in India are promoter-led where there is lack of transparency between promoters and investors,” said Bhatia. Unlike last year, this year junior employees were the second most common perpetrators causing fraud incidents (43 percent respondents).

Bhatia said that the only solution to mitigate JV frauds was for partners to be transparent about the terms and conditions while inking deals. “The extent of disclosure in financial and non-financial reporting especially in non-listed companies remains low. Hence, the survey find of increase in frauds in JVs was not a surprise,” said Bhatia..

Frauds will only increase in the coming years, he said, striking an ominous note.  However, there has been an increasing number of Indian firms implementing new processes and practices to counter fraud with better use of internal audit, due diligence on vendors and contractors and rising awareness in investing in cybersecurity mechanism, he said.