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Here's how prone companies are to fraud in India, China, US

Last updated on: October 21, 2011 10:34 IST

Here's how prone companies are to fraud in India, China, US

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Organisations operating in multiple geographies, legal environments and cultures face a complex set of challenges and risks as they develop their business.

The fifth edition of Kroll's Global Fraud Report, prepared in cooperation with the Economist Intelligence Unit, illustrates the speed at which the fraud threat is evolving, and reinforces the direct financial benefit to those organizations who actively manage their fraud risk.

Vendor, supplier and procurement fraud is an increasing problem in Asia.

In a recent Global Fraud Survey, a third of the respondents said that they had suffered from this type of fraud in the past year.

India, too, has a number of significant fraud problems. Its prevalence is among the highest in the survey.

Let us have a look at how pervasive the problem is in India and how it stacks up against China and North America.

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Image: Vendor, supplier and procurement fraud is an increasing problem in Asia.

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Here's how prone companies are to fraud in India, China, US

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Companies affected by fraud (all data is 2010-11)

India: 84 per cent

China: 84 per cent

North America: 66 per cent

A positive finding in this year's report is a drop in the overall prevalence of fraud - from 88 per cent of respondents having suffered an incident in the last 12 months to 75 per cent.

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Image: India Gate in New Delhi.

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Types of fraud impacting companies

Corruption and bribery: 31 per cent in India

Corruption and bribery: 19 per cent in China

North America: Not available

However, a number of specific fraud types are growing more common: in particular, management conflict of interest, supply chain fraud, internal financial fraud and corruption are of mounting concern.

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Information theft, loss or attack: 27 per cent in India

Information theft, loss or attack: 28 per cent in China

Information theft, loss or attack: 26 per cent in North America

The good news is that the two biggest areas of fraud - theft of physical assets and theft of information both saw small declines this year.

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Internal financial fraud or theft: 23 per cent in India

Internal financial fraud or theft: 20 per cent in China

North America: Not available

This year's survey indicates that when fraud dissuades companies from doing business in a country or region, corruption is by far the biggest specific concern.

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Image: Gateway of India in Mumbai.

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Here's how prone companies are to fraud in India, China, US

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Theft of physical assets or stock: 23 per cent in India

Theft of physical assets or stock: 20 per cent in China

Theft of physical assets or stock: 23 per cent in North America

Corruption is a growing risk for companies worldwide. Its prevalence has shown the biggest increase of any of the frauds covered in the survey, nearly doubling from 10 per cent last year to 19 per cent in the latest survey.

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Vendor, supplier or procurement fraud: 22 per cent in India

Vendor, supplier or procurement fraud: 33 per cent in China

North America: Not available

The prevalence of information theft declined in the last year, from 27 per cent to 23 per cent, but that does not mean that companies are confident that they have the problem under control.

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Financial mismanagement: 22 per cent in India

Financial mismanagement: 22 per cent in China

North America: Not available

Moreover, the nature of the information being sought by fraudsters is also widespread, requiring potentially different defenses for distinct types of data.

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Image: Lotus Temple in New Delhi.

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Management conflict of interest: 19 per cent in India

Management conflict of interest: 23 per cent in China

Management conflict of interest: 15 per cent in North America

The risk of fraud is real. The financial crisis did not make it worse; it simply made it more apparent and, perhaps, made the consequences more serious.

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Percentage of firms considering themselves moderately or highly vulnerable

Corruption and bribery: 78 per cent in India

Corruption and bribery: 64 per cent in China

North America: Not available

Most of the frauds took place during the good times, when our guards were lowered.

Fraud prevention is important and needs to be proportionate and relevant to fraud vulnerability.

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Vendor, supplier or procurement fraud: 59 per cent in India

Vendor, supplier or procurement fraud: 55 per cent in China

North America: Not available

Compliance systems and controls are a key part of the defense against fraud, but compliance should not become an end in itself, perhaps not even a means to an end.

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Image: Victoria Memorial in Kolkata.

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Information theft, loss, or attack: 58 per cent in India

Information theft, loss, or attack: 56 per cent in China

Information theft, loss, or attack: 51 per cent in North America

When times are good and profits are high, a fraud might be treated as an "accounting correction"; but when things are tough, that correction may result in a breach of banking covenants.

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Companies where exposure to fraud has increased: 85 per cent in India

Companies where exposure to fraud has increased: 84 per cent in China

Companies where exposure to fraud has increased: 79 per cent in North America

When businesses fail, there is a natural desire to hold someone responsible, even to accuse that person of fraud - often with some justification, although the suspect will probably claim desperately that it was just "market practice".

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Biggest drivers of increased exposure

High staff turnover: 41 per cent in India

High staff turnover: 43 per cent in China

North America: Not available

Certain "market practice" may now be recognized as, at best, improper and, sometimes, illegal; and politicians are finding that what used to be "unnecessary red tape" has become "essential tightening of the regulations.

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Average percentage of revenue lost to fraud: 2.2 per cent in India

Average percentage of revenue lost to fraud: 2.3 per cent in China

Average percentage of revenue lost to fraud: 1.7 per cent in North America

Despite noteworthy decreases in several types of fraud, companies will need to remain vigilant in their efforts to prevent information theft and IP theft.


Image: Dazzling Beijing.

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