Deterrence and detection

Transcription

1 Deterrence and detection A growing concern A report by Fraud Investigation & Dispute Services

2 Even before the Indian businesses and industry could recover from the negative impact of big scams from last year, a major fraud same attention as the bigger ones, it is crucial to study the underlying fraudulent activity that took place in all such instances in order After a fraud, a company has to deal with multiple investigation agencies at the same time, which puts immense pressure on its important because it does not take long for an aggrieved or harassed employee to voice his or her concern through social media sites Arpinder Singh

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4 Foreword the understanding and establishing sound business practices for reputation enhancement and further growth in business by Dr S Rawat 4

5 Contents

6 1 Over the past few decades, multiple headline-grabbing cases impact on these markets and erode the trust of the investing before and no industry is immune to fraudulent situations and is vulnerable to fraud, and managers must know how to detect present when a fraud occurs: rationalization, opportunity and to psychology textbooks, opportunity and pressure are directly targets and is often tied to compensation under management sends to employees by virtue of emphasis, proportion and Corporate fraud generally falls into one of three categories: they can be detected, it is worth reviewing what fraud is, why it makes knowing that the misrepresentation could result in some 6

7 2 in India Common examples of corruption include activities that bribery or corrupt practices occur underlines the fact that bribery and growth markets such as India, in which the majority of respondents believe such conditions, with several unstable markets, sluggish or minimal growth in others and an aggressive enforcement environment Figure 1: Unethical Practices seen in organizations in India India Developed Rapid-growth All respondents Offering personal gifts / to win or retain business services 27% Offering cash payments to win or retain business 34% Offering entertainment to win or retain business Deliberately misstating a 17% 11% Don t know 4% At least one of the above 59%

8 3 concern in India Although it is the least common type of occupational fraud, it receives the most attention from the managers of public company because it is by far the most expensive in terms of deceive users executives and their teams are under increasing pressure to Indian respondents agreed that managers in their companies Alarmingly, a large number of respondents appear to be comfortable with or aware of unethical conducts in their revenues too early, under-reporting costs or encouraging managers agree that they are under pressure to deliver a Increased revenues without a corresponding increase in reporting period experiencing weak sales According

9 In spite of this there are some of the inherent challenges which make the sector vulnerable: Exposure to new and evolving channels such as internet Any untoward incident directly impacts customers and 1. forged property security documents, fake invoices and frauds are insider jobs, and the involvement of senior management results in sizeable loss to the business and 4. Investors greed to earn high returns in a to the cyclical downturn, standards and weak credit administration also played a their systems to prevent slippages and improve their post-sanction recovery processes 9

10 4 Although India continues to be a favored investment destination, the operating environment in the country is perceived to be risk prone due to the prevailing fraud scenario environmental clearances and permission makes it In its index of Ease of Doing Business 2013, 6 Bribery/corrupt practices happen widely in business in this country 19% India Developed 69% 39 Rapid-growth All respondents Companies in this country performance as better than it is 25% 54% Does not apply Applies In our sector, it is common practice to use bribery to win contracts 43% 44% allow better comparison between responses given 6 10

11 gain access to data through soft entry or information harvesting point, like a rogue employee, a malicious sub-contractor, or by breaching trusted connections through partner system breaches including credit card numbers, bank account details and healthcare information code and algorithms information theft by being vigilant towards the channels through which ensure any digital asset moving out of the company premise authorized access to sensitive information 11

12 5 regulator and the leading companies are taking certain a separate but interconnected role in the shared responsibility activities by sharing information and concerns and identifying any gaps in the collective efforts to mitigate the risk of 12

13 and records as well as designing and implementation of In addition, they are accountable for evaluation and and monitoring compliance with appropriate internal controls commences with the ethical tone at the top and includes a strong code of ethics, training on awareness of fraud, hotline reporting mechanisms, monitoring tools and processes to responsibility for oversight of businesses, including risk processes and controls, internal audit functions and external policies that are intended to foster an ethical environment audit committees have the responsibility of ensuring that management designs, documents and operates effective strategies and risk management programs that affect their internal audit is responsible for evaluating the effectiveness responsibility of evaluating the potential for occurrence of fraud Internal audit also may assist management in identifying and these duties, it may be involved in monitoring whistle-blower due to their alliance with a business partner who may be a supplier, an agent, a reseller or an outsourcer through third- to the hiring, as well as the appropriate and regular oversight of business partners and compliance program or measures for preventing and as controls and transaction testing 13

14 standards in India, since it aims to deter corporate crime and mechanism for every listed company, and outlines the duties into its fold the liabilities of responsible parties and the interests 1. follow appropriate professional advice and bring in the about unethical behavior and actual or suspected fraud or corporate governance and bring into its fold the liabilities of responsible parties and the interests of various stakeholders 2. for every listed company to establish a vigil mechanism for directors and employees to report genuine concerns in the 14

15 to constantly challenge their existing anti-bribery policies this Act till date, and that too of an individual for domestic bribery of a non-commercial nature, it is considered as perhaps one of the most far-reaching anti-bribery 15

16 6 organizations tackle the risk of fraud and minimize the resultant and includes various policies, procedures, tools and mechanisms framework: at the top is the most crucial step for creating an anti- establishing an overall culture of honesty, integrity and ethical conduct across the organization and effectively communicating this to all its stakeholders through its antifraud policy, code of conduct, whistle-blower policy and Even after its creation of an anti- fraud system, an organization could continue to face risk of fraud due to dishonest individuals not paying heed to its to an internal audit mechanism, these should include fraud risk assessment, background check, behavior pattern analysis, surprise review, fraud analytics as well as other A company suspected or detected fraud to clearly demonstrate its management committee should independently oversee investigation of internal and external fraud in the In addition to implementing analytic procedures to monitor some leading institutions are extending these procedures A practitioner with experience in handling different fraud scenarios can help an institution analyze fraud risks from a Employees in key roles are held accountable for systemic emerging markets for a long time, and with the recent spate of its regulatory activities and proposed amendments in existing Acts relating to fraud and governance in the corporate sector in for companies to understand that complying with these laws since this will not only help them incorporate a strong corporate 16

17 7 be weighed against the huge price of tackling fraud and its management: 1. A speak-up channel in a whistle-blowing mechanism strongly employees, suppliers, vendors and business associates can report misconduct without fear of reprisal, with their anonymity mechanism comprises an independent review conducted effective whistle-blower mechanism, most employees in India use informal channels to report any unusual incident as a last investigated due to issues being raised by employees, business system issues, whistle-blowing mechanisms can be used to will have to put in place effective whistle-blowing mechanisms effective tool if it is supplemented with policies and practical from such a mechanism, it is important for an organization to have a cross-functional committee and sub-committees that evaluate complaints, decide on follow-up action, initiate 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 that is relevant for a company helps it effectively address issues and day-to-day problems encountered by its employees and enable it to guide them on communicating these to its training employees working in different functions, with diverse responsibilities and varied levels of interaction with external tailor-made anti-corruption training program for employees and selected third parties can proactively help in setting the proper level of preparedness can go a long way in countering fraud risks, limiting damages and protecting the reputations of be used to identify unethical behavior, based on a social network 17

18 degree of risk makes it imperative that companies regularly review their policies, build in checks and use new and advanced constant upgrading of knowledge, skills and tools for risk such as e-discovery and forensic technology helps organizations help companies retrospectively identify fraudulent payments or based on social network analyses, and identify, preserve, develop, collect, analyze, record and present physical evidence applications and databases in a structured manner to identify duplicate procurements, related parties doing business, ghost of copying and transferring data to prevent employees from of organizations by creating a competitive advantage for them based monitoring or surveillance process can help companies Considering the mutable business landscape in India, companies registers or untargeted training, can be wasteful and may not an assessment of fraud, bribery or corruption risk will help involves companies taking proportionate action on their policies and procedures, based on the risks they face and the complexity It is important that companies effectively assess the potential risk of conducting business and develop appropriate risk management strategies in relation to third parties before engaging them in business, since such associations are vulnerable to a range of risks, the key ones among these being occur in an organization, an appropriate level of due diligence can help it proactively identify and manage risks arising from its the risk of third parties by undertaking site visits, and conducting information searches in the public domain and local interviews relating to fraud, regulatory non-compliance issues, unethical Effective due diligence can help to mitigate risks related to business references and other customers, and enable a company understand the past track record of third parties in their Additionally, by conducting thorough due diligence, a company 18

19 also helps organizations communicate with employees who work anti-fraud program is a competent team and its timely response it is necessary to establish an investigation protocol framework suspected fraud, regardless of their source, needs to be reviewed respondents were in favor of stringent disciplinary procedures, of an effective regulatory and compliance mechanism to bribery and corruption frameworks and adopt a dynamic continuing bribery and corruption risk is lack of enforcement indicated that the absence of an effective regulatory and compliance mechanism and weak law enforcement are factors A serious effort to implement a comprehensive and formal fraud risk management framework would help an also ultimately result in an improvement from unknown threats, a certain level of preparedness can go a long way in countering fraud risks, limiting damages and comply with anti-bribery policies, but today, there is a change and proactive response to curb fraud and corruption in the Changes cannot be made overnight in companies in order It is essential for them to make concerted, risk-focused efforts that target areas of potential exposure, and their them to appropriately balance their priorities of growth and ethical business conduct while seizing opportunities in these 19

20 Corporate India dynamics of growth and development in the technology driven towards creating a conducive environment of India business to Vision Empower Indian enterprise by inculcating knowledge that will be the catalyst of growth in the barrierless technology driven global market and help them upscale, align and emerge as formidable articulates the genuine, legitimate needs and interests of its environment so as to foster balanced economic, industrial entrepreneurial spirit and business acumen of owners with management skills and expertise of professionals to set itself emergence of new-age Indian Corporates, characterized by a new mindset and global ambition for dominating that our nation carries and bring in a bright, new tomorrow for 20

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22 About Fraud Investigation & Dispute Services (FIDS) FIDS India Contact Arpinder Singh Our team members have been trained on international capable of conducting extensive market intelligence and background deep insight into a wide range of issues affecting our clients and business Anti-bribery program Anti-fraud and fraud risk assessment Ethics and integrity due diligence Competition and trade services

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24 EY About EY deliver help build trust and confidence in the capital outstanding leaders who team to deliver on our promises role in building a better working world for our people, for organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this