Corporate Frauds In India On The Rise


Lack of strong internal audit mechanism along with over-riding powers of the top management in the companies have resulted in corporate frauds in India. The corporate frauds have risen by over 45% in the last two years. According to a joint study conducted by ASSOCHAM and Grant Thorton, corruption, money laundering, tax evasion, window dressing, financial reporting fraud and bribery are some of the common corporate frauds occurring in India Inc.

“Over 65% of our survey respondents agreed to witness a rising trend of willful defaults and frauds. The survey observed that the lurking risk of frauds has been dissuading global companies from investing in India,” states the report.

Sectors Affected By Corporate Frauds

The survey has revealed that several sectors across industries have been victims of corporate frauds in India. Nearly 52% of the corporate frauds have happened in real estate and infrastructure in the last two years, while financial services sectors recorded 34% frauds. Telecom, manufacturing, electronic goods and IT and ITes sectors have recorded a meager 5%, 3% and 2% corporate fraud respectively.

“Procurement frauds, payrolls frauds, asset misappropriation, financial misstatement, corruption, bribery, tax evasion, piracy, intellectual Property (IP) fraud, kickbacks, accounting frauds, counterfeiting, white-collar crimes etc are swiftly threatening business in both the private and public sectors,” added the report.

The fall

A corporate fraud will always have ripple effect on the overall business of a company. Apart from the financial losses that the victim has to incur, a fraud also makes a dent in the brand and the reputation of the company. “Corporate wrongdoing inevitably ends up creating a vicious cycle that hurts shareholders value, damages investor’s trust, leads to locking-up of capital in litigation, and ultimately causes wider financial market instability; eventually becoming part of much larger problems,” said DS Rawat, general secretary of ASSOCHAM.

In terms of what was the biggest concern for India Inc, a majority of the respondents (over 66%) said that their biggest concern was about the impact of the fraud on the brand image of the company. On the other hand, 26% the companies were worried about the financial losses that company incurs at the end of the fraud. “Intentional fraudulent financial reporting, information manipulation, theft of inventory etc. are among the common types of misconducts that can result in financial losses for companies,” suggested the report.

The Future

About 71% of the companies expected cases of corporate fraud to increase in the next five years. “Bribery, corruption and regulatory noncompliance are the top frauds that the respondents have experienced in the past two years,” asserted the report.

However, companies are becoming more aware of the need for an internal mechanism to keep a check on the incidents of frauds within the companies. Among other measures, policies that support whistleblower and independent and external audits have been ranked as effective tools to mitigate the risks of frauds.

“The exchequer suffers massive losses each year, usually running into several crores of rupees because of an array of frauds. As per the reports from the RBI, during the period 2012-13, 29,653 cases of fraud were detected in India’s nationalized banks, totaling Rs 24, 828 crores,” disclosed the study.
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