Company corruption increases under Modi sarkar

Company corruption increases under Modi sarkar

New Delhi: Despite Prime Minister Narendra Modi's repeated vows to reduce corruption in India, a recent report shows that the country has one of the largest fraud problems in the world.

The Economist Intelligence Unit, commissioned by New York-based risk consultancy firm Kroll Inc., surveyed senior executives from around the world operating in a wide variety of sectors and functions in order to assess the current fraud environment.

The survey of 768 senior executives from a broad range of industries worldwide this year yielded some surprising insights. The overall picture is that fraud has continued to increase, leaving businesses feeling more vulnerable and at risk than ever before.

In the report, fraud includes corruption, bribery, and stealing of proprietary information among other things.

India has one of the largest fraud problems of any of the countries covered in the report, according to Kroll. In fact, in the past one year the number of companies affected by fraud has increased. According to the survey, 69% Indian companies were affected by fraud in 2013-14 while in 2014-16 the affected firms were 80%.

Courtesy: Kroll

Its 80% overall prevalence is third in this group compared to Colombia's 83% and Sub-Saharan Africa's 84%. It also has the highest national incidence of corruption (25% of companies), regulatory breach (20%) and IP theft (15%). It also ties for the highest national level of money laundering (8%).

The outlook for the future, the report says, is also worrying: 92% of Indian respondents reported that their firms had seen exposure to fraud increase in the past year, adding that for every fraud covered in the survey, respondents from India are more likely than average to report that their firms are highly or moderately vulnerable.

In particular, they have the highest proportion reporting this level of exposure to a vendor or procurement fraud (77%), corruption and bribery (73%) and regulatory or compliance breach (67%).

While companies in India are willing to spend to improve their level of anti-fraud protection, it appears that such funds are not being invested appropriately, the report opines. For respondents that had identified the perpetrator, 59% indicated that junior employees were leading players in at least one such crime.

Despite these vulnerabilities and the high proportion of fraud perpetrated by insiders, only 28% of companies in India invest in staff background screening and only 55% invest in vendor due diligence.

Greater attention to employees and reputation-focused due diligence might significantly bolster other fraud efforts at firms in India, the report opines.

Globally, 75% of companies experienced a fraud incident in the past year. 81% of companies affected by fraud reported insider perpetrators and Whistleblowers were responsible for exposing 41% of fraud incidents.

Reshmi Khurana, a Managing Director and head of Kroll's India office, says that corporate governance in India is evolving in a positive way, and this is being led by a new generation of entrepreneurs.

"They have experienced the many benefits of following sound corporate governance practices, from being rewarded by investors to seeing firsthand how transparency in their financial reporting helps them make the right business decisions.

"The question is, once these businesses grow to a particular size and scale, will these entrepreneurs and the corporate governance foundation they are establishing be able to withstand the external pressures that often accompany growth?" she says.

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