India Inc yet to use whistle-blowing to curb fraud: Survey

Indian companies are yet to fully utilise whistle blowing mechanism as an "effective tool" to curb frauds, with most employees taking informal channels to alert the top brass about misdoings, says a survey.

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"Most frauds result in some form of business disruption as well as reputation and financial losses. Whistle blowing is still at a nascent stage in India and most Indian companies do not use it as an effective tool against fraud," as per a report jointly released by Assocham and E&Y.

Whistle blowing system, popular in the developed nations including the US, would be part of the revamped Companies Act.

The new Companies Bill, cleared by Lok Sabha last December, is likely to be passed by the Rajya Sabha in the current Parliament session.

The study said an effective whistle-blowing mechanism comprises an independent review conducted by an audit committee. In the absence of a mandatory and effective mechanism, most employees in India use informal channels to report any unusual incident as a last resort.

"The ground reality is that most such cases are eventually investigated due to issues being raised by employees, business partners or vendors," it said.

While a number of Indian companies have whistle-blowing policies, most of them use these more as a 'good to comply with' measure, it said.

However, it said that once the new Companies Bill gets passed, the corporates will have to put in place effective whistle-blowing mechanisms and make these an important part of their strategic agenda.

The study said to achieve desired benefits from such a mechanism, it is important for an organisation to have a cross-functional committee and sub-committees that evaluate complaints, decide on follow-up action and initiate disciplinary action and report incidents.

"In the immediate scenario, it may be challenging for a company to bring about a change in its operations, but in the long-run its doing so will demonstrate its seriousness in detecting misconduct and its intention of complying with the law, the report said.

Further, it said, technology can help organisations detect fraud by using various applications and databases in a structured manner to identify duplicate procurements, related parties doing business, split purchase orders and inflated expense statements.

The report said 73 percent of respondents feel that the companies should adopt a zero tolerance approach to bribery and corruption, while the remaining were in favour of stringent disciplinary procedures.