71 percent respondents see fraud as an inevitable cost of business
KPMG India Fraud Survey 2012 reveals corporate India’s under-preparedness to deal with futuristic frauds - cyber crime, intellectual property fraud & identity theft
The bitter truth is that Indian industries function in an uncertain and unpredictable environment which often leads organizations to take the easiest modes of doing business. Alas, the easiest may not always be the best way of doing business. Going by the KPMG India Fraud Survey 2012, 71 percent respondents see fraud as an inevitable cost of business. And there are certain sectors, where businesses even budget for cost associated to fraud simply because the cost of mitigating fraud is far more than budgeting for expected fraud in doing business.
According to the survey, even as corporate India gets used to operating in an environment where fraud is inevitable, there is unwillingness from corporate India to see fraud as a strategic risk that poses a grave threat to firms as they begin to experience frauds of the future. Cyber crime, intellectual property fraud including counterfeiting and piracy, and identity theft are the new kids on the block - top fraud concerns for the future which firms must be prepared for. This shows a shift in the fraud landscape with fraudsters increasingly targeting organizational knowledge (data, code etc) and not physical assets to defraud companies. Rohit Mahajan, Partner & co-Head, Forensic Services, KPMG, India shares, “Over the last decade, knowledge has emerged as a key organizational asset. It is only natural that fraudsters will target these assets, as they are much more valuable to companies today.” These futuristic frauds rely mostly on technology and allow fraudsters to work in groups to leverage their full might. And such frauds will prove to be a major threat for all companies irrespective of size, sector and operations. Amidst this reality, the fear factor for corporate India is that 70 percent of survey respondents claim they have no effective mechanism in place to mitigate risks from futuristic frauds.
This under-preparedness of companies to tackle futuristic fraud is a concern which can prove fatal for companies. As on date, 78 percent of respondents are unaware of the risks associated with intellectual property infringement, counterfeiting or piracy. And in case of cyber crime, while over 80 percent respondents have policies on accessing external websites and social media from their office networks, 40 percent said their companies do not have specific guidelines on the kind of information that could be shared on social media. Around 53 percent of respondents said they had faced identity theft (either by way of password sharing, social engineering or malwares) and yet did not have a policy to mitigate these incidences.
Most organizations rely on internal initiatives to stay abreast of emerging fraud trends and that may not be the best way forward. Whistleblower hotlines were identified as an efficient method to uncover fraud or misconduct within organizations; however only 50 percent said they had established such a hotline in their organization. Further, there is also a consensus that the ‘one-size-fits-all’ framework is enough to mitigate the emerging fraud risks. Mahajan explains that this is true because, “Each risk manifests itself uniquely. 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.”
The probability of such new-age frauds are higher in the Financial Services and Information & Entertainment , given their high dependence on technology, large transactional data in electronic form, as well as the confidential information they hold. In a scenario where businesses are increasingly becoming dependent on technology, there are more who must fear and therefore prepare.