Financial frauds are sore point for foreign investors: Study

A rise in financial frauds has become one of the sore points for foreign investors and needs to checked by a global standard regulatory framework coupled with the companies' in-house mechanisms, a study has said.

"With the increased prevalence of fraud and the negative consequences associated with it, there is a strong argument that companies should invest resources and time to tackle it," a paper authored jointly by Associated Chambers of Commerce and Industry of India (Assocham) and global consultancy firm Grant Thornton said.

"Cases of financial fraud have risen in India over the last few years and have become one of the main factors deterring foreign companies from investing in India," it said.

As the Indian economy is growing, increasing corporate frauds will prove to be disastrous for India, the paper said.

Noting companies' inability to perform an effective fraud risk assessment, the paper said: "As technology is advancing, fraudsters are able to find ways to use it and perpetrate a fraud. Tech-savvy fraudsters are using technology in a variety of ways to commit fraud."

"Devious ingenuity of the human brain is now leveraging technology to indulge in more sophisticated methods of crimes which are very much capable of creating systemic instability," Assocham President Sunil Kanoria was quoted as saying.

"Putting restrictions on what your employees have access to will limit the potential of misappropriation of assets but if an employee has access to all aspects of an organisation, the potential for fraud is significantly increased," the paper said.

Vidya Rajarao, Partner, Grant Thornton India, said that the initiative to stop frauds must come from the senior management.

"The responsibility of preventing, detecting and investigating corporate and financial frauds rests squarely on board of directors.The top management should define their anti-fraud strategy, establish appropriate fraud mitigation steps and train their employees to combat financial and corporate frauds," Rajarao said.

It is not to suggest as if there are no financial frauds taking place in rest of the world, said the paper that enumerated several big-time scandals that have hit the international headlines.