Sophisticated technologies and high growth pressures have changed the nature of frauds within organisations

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in the last few years. The Indian industry is seeing a major shift from low-end procurement-based spurious acts to senior-management-involved scientifically committed frauds, says advisory firm KPMG.

“Industry-specific frauds such as IP-related irregularities in the pharma sector and information theft in IT are increasing — apart from service provider and vendor related frauds. The value of frauds has also been increasing,” Rohit Mahajan, executive director – Advisory Forensic Services of KPMG told Financial Chronicle.

He added that cases such as the accounting frauds committed by the erstwhile Satyam Computer Services are not isolated events. “Many more exist, but are hidden from the public eye,” he said.

The advisory firm will be releasing its survey on corporate frauds in March 2010. The changing scenario is evident from the difference in the results of the 2008 report and the present situation. Over 60 per cent of the respondents in the 2008 survey had stated that “their organisations neither have a complete understanding of various risks of fraud faced by them, nor do they have an effective internal control mechanism to manage such risks”.

Most organisations did not have a clue of the amount of fraud happening when procurement-based frauds were the most prevalent risk. Over 1,000 organisations in India were surveyed and the participants included CXOs and heads of departments. About 42 per cent of the respondents said that the highest potential of committing fraud exists within the organisation, but at the lower level. Employee collusion with vendors and service providers resulted in forged tenders and fund embezzlements.

However, companies are slowly becoming sensitive to the risks, mainly forced by multinational customers. “Clients are now emphasising on background checks on employees, vendors and suppliers, which serve as the primary step to check frauds that are blatant, but mostly ignored,” Mahajan said. The creation of new roles such as ombudsperson and chief risk officer clearly shows the changing mindset of Indian companies towards zero tolerance of frauds, he added.