Increasing frauds make India Inc vulnerable: Report

More than two-thirds of companies in India are victims of frauds of various types, but remain complacent despite increasing vulnerability from insiders, a new international fraud report said Wednesday.

The 2013-2014 Global Fraud Report (GFR), released here, was commissioned by Kroll with the Economic Intelligence Unit of more than 900 senior executives worldwide, including 51 from India.

As high as 71% of those surveyed in India said their exposure to fraud has increased, compared to 67% last year.

The GFR found that 69% of Indian companies continue to be hit by frauds, experiencing an above average incidence of seven different types of frauds.

Topping the list is the theft of physical assets with 33% of Indian companies affected compared to global average of 28%.

Corruption and bribes came next with 24% of Indian companies hit compared to global average of 14%.

22% of Indian companies fell victim to internal financial frauds compared to 16% worldwide and information theft accounted for 24% vis-a-vis 22 percent internationally, according to GFR.

Kroll India chief Reshmi Khurana said that while Indian companies have always operated against the backdrop of a high corruption environment, 37% of the respondents acknowledged that their firms have become even more vulnerable to corruption-bribery related frauds.

"Fraud and corruption remain top of mind for companies looking to do business in India. Many companies we have been in discussion with are delaying investments in India because and corruption-bribery related risks, vendor and procurement related fraud. This poses a substantial threat to India Inc," Khurana said.

Combined with a tough business environment this implied that companies must continue to create strong and well-organised internal control systems to prevent fraud and develop best practices to tackle them, she added.

Insider fraud is particularly rife in India compared to other BRIC countries with 89% of (Indian companies) indicating that the perpetrator was some sort of an insider.

Sixty-nine percent of the respondents pointed to the involvement of junior employees as the main culprits, far higher than Brazil, Russia and China.

Another factor adding to increasing fraud exposure is the high staff turnover, cited by 29% of the respondents. This meant that 51% of the respondents who said they were not planning to invest in staff background checks would have to reconsider, Khurana said.

India has another problem of frauds -- as high as 40% -- committed by vendors and suppliers in India, and significantly higher than the BRIC countries and the global average of 32%.