Global cos wary of India due to fraud, security concerns

Moneycontrol BureauFraud, cyber and security incidents are now the ‘new normal’ for companies across the world, according to executives surveyed for the 2016-17 Kroll Annual Global Fraud and Risk Report.
Globally, the proportion of executives that reported that their companies fell victim to fraud in the past year rose to 82 percent, from 75 percent in 2015, highlighting the escalating threat to corporate reputation and regulatory compliance, the report says.

In India, the percentage of respondents affected by fraud reduced to 68 percent in 2016, down from 80 percent in 2015, marking a 12 percentage point decrease. "However, when all participants of the survey were asked whether they had been dissuaded from operating in a particular jurisdiction because of fraud concerns, notably 19 percent of the respondents stated they were dissuaded from operating in India, which was the second most mentioned jurisdiction after China (25 percent)," the report said.Security incidents were 3 percent more prevalent in India than the global average of 69 percent, which is consistent with Kroll’s experience on the ground. Nearly a fifth of respondents said that they would be dissuaded from investing in India because of security risks.

Compared to last year, a greater percentage of respondents in India reported fraud across the four categories surveyed - corruption and bribery (27 percent), management conflict of interest (27 percent), market collusion (27 percent) and internal fraud (25 percent).

The survey results also reveal that the most common perpetrators of fraud and security incidents in India over the past 12 months were current and former employees. Executives in India named junior employees inside the company (61 percent) as the primary perpetrators of fraud incidents. The next most common group to be named was agents and intermediaries working for the company (49 percent). In both cases, these numbers are 22 percent above the global averages.

Reshmi Khurana, Managing Director and Head of South Asia for Kroll, said: “The reported 12 percentage point drop in the number of companies affected by fraud in India indicates that there is a gap in the perception of fraud in India between internal and external stakeholders." "These statistics reveal the contradiction in the Indian economy," she added. "On the one hand, India is an attractive destination for foreign investors given that it is one of fastest growing emerging markets. On the other hand, as our survey indicates, investors are deterred due to fraud, corruption and security concerns."

"It is, however, possible to manage and ride the aforementioned risks if you have a clear and consistent fraud mitigation strategy that includes due diligence on employees and partners, developing an effective whistle blowing system, ensuring independence of investigations and building a strong compliance culture,” she further said.

With regards to cyber security, a broad range of cyber incidents were reported in India. 73 percent of survey participants reported that they had experienced a cyber incident in the past 12 months, though this was 12 percent lower than the global average.

Tarun Bhatia, Managing Director, Investigations & Disputes, commented: “Cyber risk presents a major threat to Indian companies today. A significant number of participants from India (73 percent) reported that they had experienced a cyber incident in the past 12 months. 59 percent of respondents in India said that their employee records had been targeted in the last 12 months, compared to 40 percent of the respondents globally. Cyber risk is set to grow in India as the country becomes more digitized."

He warned that at the same time, as the laws governing cybercrime strengthen, companies in India will face greater reputation risk from having more obligations to disclose breaches that they may suffer. "We advise companies operating in India to address cyber risk as a long term threat, not focusing only on technology related risks but also addressing processes and employee related risks that lead to cyber incidents,” he said.

The road to resilienceIndia appears to be ahead of its peers when it comes to taking measures to counter fraud. Over 85 percent of participants stated that they were combating fraud through better financial controls (60 percent in India, compared to 45 percent globally), due diligence on partners, clients, and vendors (50 percent in India compared to 39 percent globally), information security systems (52 percent in India compared to 41 percent globally), and staff controls (53 percent in India compared to 39 percent globally).