75% execs say corp fraud rising in India: KPMG

Corporate fraud in India is on the rise with 75 per cent of the top executives surveyed by consultancy firm KPMG saying they have seen an increase in fraudulent activities.

More number of employees are indulging in fraud and mostly, they are driven by financial stress, greed and dissatisfaction with their company management, according to 'KPMG Fraud Survey Report 2010'.

Global consultancy KPMG conducts the survey every two years across all sectors.

The survey found that both junior and senior employees are perpetrators of frauds and the quantum of fraud in value terms is also on the rise.

"87 per cent of survey respondents state that their organisation had incurred fraud losses of more than Rs 1 million against 47 per cent in our last survey," KPMG said.

The survey said that over the past two years, the incidences of frauds are on the rise and the current control system is ineffective, indicating that India Inc needs to deal with fraud risks firmly.

"Organisations need to realise the importance of putting effective internal control mechanisms in place, so as to manage risks. It has become imperative for companies to be vigilant, and not just act when fraudulent situations arise," KPMG( India )Head-Forensic Deepankar Sanwalka said.

The survey noted that supply chain fraud (procurement, distribution and revenue leakage) is the area most prone to cases of fraud.

After the founder chairman of Satyam Computers (now Mahindra Satyam) admitted to cooking up books of accounts to the tune of Rs 8,000 crore, the survey noted that instances of financial statement frauds are on the rise.

An overwhelming 81 per cent of the respondents have said financial statement fraud is now a major issue for investors.

It said that as the earnings of some executives are linked to the financial performance of an entity, the employees at times resort to cooking up the books.

"Ineffective whistle-blowing systems, inadequate oversight of senior management activities by the audit committee and weak regulatory oversight mechanisms are the reasons for the increase in the number of frauds that one can see in the industry today," the report said.

The survey found that proper fraud risk management system is not prevalent in India Inc as Indian companies have a reactive approach to dealing with fraud.

Also the companies which undertake fraud risk assessment, the focus is more on financial frauds rather than a "holistic assessment."