Collusive fraud on rise in India: KPMG report

About 62% of the frauds in India are committed in collusion, similar to global trends. According to the latest KPMG International reports titled, Global profiles of the fraudster, women are less likely to collude with only 45% of them colluding, compared to 66% of males. Collusion involving more than five people increased from 9% in 2010 to 20% in 2015.

Higher growth markets like India, Latin America and the Caribbean, exhibited higher collusive fraud rates, as compared with developed markets like the US, Australia and New Zealand, where several fraudsters acted solo.

The report said that 34% of collusive fraudsters cost the company $1 million or more, compared with 16% for soloists.

"Colluders inflict much more damage than individuals. Larger the group, bigger the damage. Increasingly, these groups include outside parties and companies need to watch out for how they mitigate the rise of third parties colluding with employees. A strong third party risk management programme which ensures comprehensive due diligence is carried out on vendors, channel partners and suppliers, is a sound way of combating fraud and assessing risks regularly," said Mohit Bahl, partner and head, Forensic Services, KPMG in India.

 

Fraudsters, who collude tend to be senior employees who have worked at the company for longer when compared to individual fraudsters. Globally, 35% of fraudsters are executives or non-executive directors, compared with 23% in India. In addition, 63% of the fraudsters surveyed in India constituted managers and staff members. This is consistent with the trend of perpetrators in India being younger.

This year's survey is a follow-up to the 2013 report and is based on an analysis of 750 fraudsters across 81 countries, examined between March 2013 and August 2015. Globally, 79% of the fraudsters are men, and the proportion of women has risen to 17% from 13% in 2010. Findings in India indicate that Indian fraudsters are younger in age, compared to their global counterparts. 32% of the perpetrators were in the 26-35 age group, compared with 14% globally.

"An interesting observation in this year's survey in India finds an increasing number of fraudsters in the one to four years of service bracket (27%) compared to 19% globally, indicating that not only is the Indian fraudster younger, but also starts early," said Jagvinder Brar, partner, Forensic Services, KPMG in India.

The increasing incidence of technology in enabling these frauds is consistent with the trend of perpetrators being younger in our country (33% of frauds in India were tech-enabled as opposed to 19% globally). Cyber fraud, an important form of technology-based fraud, is emerging as a growing threat. Many organisations are aware of the issue but seem to be doing little about it.

In India, greed is the predominant motivation for 77% of fraudsters compared with 60% globally. Adding to this, Mritunjay Kapur, partner and head, risk consulting, KPMG in India said: "This manifests itself into personal financial gain and the desire to show better performance than what it is in reality. 64% of fraudsters in India are high performers compared with 38% globally. Their sense of superiority is stronger than their sense of fear or anger."

Globally, and in India, weak internal controls were a contributing factor for 61% of fraudsters.There was a sizeable jump in the proportion of fraudsters who saw an opportunity that presented itself due to weak controls, compared to the survey carried out in 2013.

Global trends indicate 44% of the perpetrators were able to override controls, compared with 69% in India. Frauds go undetected as anti-fraud controls (such as internal audit, maker-checker principles, suspicious managers and co-workers, and anti-fraud processes) are not strong enough and at times, non-existent or missing. Even if controls are strong, fraudsters find ways to evade or override them.

The most-prevalent fraud surveyed globally is the misappropriation of assets (44%). This mainly includes embezzlement and procurement fraud followed by fraudulent financial reporting (20%).

CV fraud is a significant trend observed in India. 13% of the cases checked by KPMG in India's verifications practice indicated discrepancies in CVs. Primary areas of fudging include education certifications, addresses and past employment records. This trend is observed to be common amongst both genders, with females fast catching up with their male counterparts.

In India, 59% of fraudsters were detected as a result of a tip, complaint or a formal whistle blowing hotline and a further 25% were detected as a result of a management review.

Fraud and corruption go hand in hand and regulators around the world are increasingly focusing on anti-bribery and corruption controls. Overall, 16% of the fraudsters surveyed had committed corruption-type frauds and exhibited features that are different from other forms of fraudulent activity. "Supply side corruption tends to operate at the higher levels in an organisation; and it tends to be concentrated in the office of the chief executive or owners," said Brar.