Financial loss relatively small than public image: ASSOCHAM- Grant Thornton study

The actual or attempted payments fraud has resulted in relatively small financial losses whereas the company faces huge problem of public trust which is irreparably tainted, reveals the ASSOCHAM and Grant Thornton joint study.

The joint study on Law & Technology: Evolving challenges as a result of fraud released reveals about 39% of organizations, the potential loss from fraud is estimated at less than US$ 25,000, while for 37% of organisations, the potential loss is between US$ 25,000 and US$ 249,999. The potential loss is US$ 250,000 or more for 17% of organisations.

While a business scandalised by fraud might never be the victim or perpetrator of another fraud, its public image might be irreparably tainted. As a consequence, the company may have to pay a higher price for credit, may be refused membership in trade associations or might not be considered for a strategic alliance, said Mr. D S Rawat, Secretary General ASSOCHAM while releasing the joint study.

Businesses that are subject to audit and have experienced fraud, especially if the fraud was perpetrated by the company management, are likely to be assessed as a high audit risk. That means auditors will scrutinise company books more closely before signing off on its financial statements. When an auditor is required to perform more procedures, the cost of the audit will increase. This can often be mitigated by demonstrating that the offending managers or employees have left the company and the company has instituted strict procedures to thwart future attempts at fraud.

The effect of fraud on a company's culture and morale can be shattering. Any association with a company that has perpetrated or suffered fraud can be troubling and embarrassing for the people who work there. This may be especially true in a growing business setting where workers feel more connected with one another. Even if employees leave the company, they may carry an association with a fraudulent company into their next place of employment, even if they were not involved with the fraud at all.

Many businesses are feeling the effects of the economic downturn and in their attempts to minimise losses, often they unknowingly open themselves to huge financial and reputational risks. This is due to the fact that when companies cut back on costs, they often increase their chances of being victims of fraud, adds the joint study.

The economic crisis has forced retailers, like other organisations, to closely examine every aspect of their business for inefficiencies. This investigation has exposed the holes that exist in their E-Commerce operations. Retailers are waking up to the realities of E-Commerce fraud and are realising the inadequacies of their current fraud management processes. Fraud is fast becoming an area of concern for retailers as they gear up for further growth in online commerce.

As the popularity of internet shopping and online auctions grows, so does the number of complaints about transactions. Some of the most common complaints involve: Buyers receiving goods late, or not at all, Sellers not receiving payment, Buyers receiving goods that are either less valuable, than those advertised or significantly different from the original description, Failure to disclose relevant information about a product or the terms of sale, reveals the ASSOCHAM- Grant Thornton joint study.

There are several avenues of risk associated with each and every process. From a risk perspective, E-Commerce companies could face issues around brand risk, insider threats and website uptime. Issues around employee-vendor nexus, bribery and corruption make companies vulnerable to fines. Cyber security also raises some concerns around website exploitation by external entities, highlighted the study.

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