80 per cent of India Inc. foresees increase in fraud cases in next two years: Deloitte report

The uncertainty and business disruption brought about by the pandemic has contributed to fears amongst corporate India about the rise fraudulent cases.

Releasing its biennial survey - The India Corporate Fraud Perception Survey, Edition IV - Deloitte Touche Tohmatsu India LLP (DTTILLP) said over 80 per cent people felt fraud cases would rise in the next two years, a 22 percentage point increase over the previous edition of the survey in 2018. "Traditionally, many Indian organisations have directed a majority of their FRM (Fraud Risk Management) efforts towards fraud detection, whereas technology interventions can be primarily geared towards fraud prevention. This will require a shift in mindset from fraud detection to fraud prevention. We believe this shift can be enabled by working towards building an enterprise-wide view of fraud and making strategic technology investments," said Nikhil Bedi, Partner and Leader, Forensic, Financial Advisory, DTTILLP.

About 70 per cent respondents felt that fraud losses would rise and one-third of the respondents felt losses would be between 1 per cent and 5 per cent of revenues, the survey revealed.

According to it, these adverse sentiments are due to large-scale remote working arrangements and changes in business models, which have made it challenging to understand fraud-related vulnerabilities. The survey indicated that such adverse sentiments were further exacerbated by reliance on static data for FRM efforts.

"About 43 per cent of respondents felt their existing fraud risk management frameworks were inadequate to address future frauds. Accordingly, they indicated diverting budgets towards adopting enhanced technologies that could provide an enterprise view of fraud (22 per cent); implementing enhanced fraud risk management processes for third parties (17 per cent); and creating awareness amongst employees (17 per cent) for fraud prevention," the survey stated.

For the first time in four editions of the survey, nearly 35 per cent respondents believed that future frauds would be detected using data analytics and other technology tools (and not rely entirely on conventional approaches, such as internal audit). However, despite a growing realisation that technology would be key to future fraud risk management efforts, less than 5 per cent respondents indicated investing in anti-fraud technologies in the past six months.

The survey also suggested that technology can help organisations in fraud response, particularly if it involves responding to a regulator or seeking legal recourse. About 50 per cent respondents indicated seeking legal action against the parties involved in fraud (compared with 33 per cent in the previous edition of our survey).

"The confidence to seek legal recourse may be a result of regulatory changes that are increasingly pushing for greater disclosures, as well as increased use of technology by organisations that can help document and preserve evidence to aid in faster resolution of cases," Bedi said.

The survey also outlined the evolution of the fraud risk management ecosystem comprising third-party experts, such as law firms, forensic accountants, technology companies, and others.

"The effectiveness of fraud risk management efforts in the future will rely on building a trustworthy ecosystem of experts. While in-house fraud risk management teams will continue to grow and manage known risks, ecosystem players will be sought for strategic advice on future fraud risk management," Bedi added.