'Weak internal control systems make PSUs more prone to frauds'

Scarcity of resources and weak internal control mechanisms are making the domestic public sector organisations more vulnerable to risks posed by fraudulent activities, according to a Grant Thornton survey.
Nearly 64 per cent of the respondents of the survey carried out by Grant Thornton believe PSUs are more vulnerable to fraudulent practices and corruption than their private sector peers.
According to the report, PSUs have witnessed a rise in fraudulent incidences in the past few years.
"Weakness in related to internal controls, scarcity of resources at disposal and senior management override are among the major reasons for the increased vulnerability of PSUs to fraud risks," it said.

The survey revealed that quantum of cases of corruption and fraud is believed to be higher in real estate and infrastructure sectors with 52 per cent respondents opining that these sectors are more prone to corruption.
"Over the past few years, a number of fraudulent incidents have been unearthed in the domestic real estate and infrastructure sector. Its heterogeneous nature and lack of robust internal controls make the real estate sector more vulnerable to frauds," the report said.

Besides, the sector also experiences a risk of revenue leakage at various levels, owing to rising cost pressures on contractors and developers, continually evolving regulations, and absence of mature business processes and controls, it said.

Financial services has emerged as the second most vulnerable sector with 34 per cent of respondents believing that malpractices could occur in this industry.
"Fraudulent claims in the insurance sector, phishing, theft of confidential data, money laundering and tax evasion are some of the issues plaguing the financial services sector at present," according to the report.
The report further said the rising cases of frauds have put pressure on the bottom-line of financial services institutions, making it necessary for them to devise and integrate holistic controls and monitoring frameworks with processes governance, analytics and technologies.
"An appropriate risk management strategy can go a long way in making businesses in this sector more proactive in identifying fraudulent transactions, and taking necessary steps in time," the report said.

Grant Thornton, however, maintained that vigilance against corruption, money laundering and bribery needs to be a key focus for domestic corporates. Maximum number of respondents expressed optimism that the provisions in the new Companies Act will improve corporate governance standards for India Inc.