The spate of scams unearthed in the last few years has raised anxiety in the minds of foreign investors, who are looking to be part of the Indian growth story, but are wary of fraud, bribery and corruption risks, according to a Ernst & Young report.

Although India is on the expansion path of multinational corporations looking for high growth, recent fraudulent incidents reported by the media have made foreign investors wary of various hidden risks, said the report ‘Fraud and corporate governance: Changing paradigm in India'.

“MNCs are faced with the dual challenge of achieving aggressive growth numbers and ensuring that in the process they are not violating any regulatory guidelines.

“The complex business environment, renewed regulatory activism and increasing use of technology have tipped the scale against corporate organisations that are hard-pressed to deliver business results in today's risk prone scenario,” observed the report.

Practical issues

Practical issues that MNCs may face in an emerging market such as India include lack of availability of unique identification number and reliable rating data for entities or individuals; and facing the challenges of bribery and corruption, particularly while working with local partners, who may have a different approach to conducting business.

Further, the other challenges that MNCs may run into are extensive use of cash or cheques, rather than electronic transfers, with the danger that these may be used to facilitate unethical business practices and “relatively weak governance.”

With increasing consumerism, there is a shift from the ‘need' to ‘greed' as a motive for committing fraud in companies to support an opulent lifestyle, said Mr Arpinder Singh, Partner & National Director, Ernst & Young Pvt Ltd.

The profession service and accounting firm said that it has come across a trend where younger employees are increasingly committing fraud to support a lifestyle that is not commensurate with their incomes.

Behavioural warnings

The survey observed that fraudsters generally show behavioural warning signs of their misdeeds. These red flags, including living beyond their means or displaying control issues, cannot be identified by traditional control methods.

Employees should be trained to recognise common behavioural signs that indicate that fraud is being committed and be encouraged not to ignore such red flags, since these may be the means of detecting or deterring fraud

Although insider threats are easy to understand, they are hard to detect as compared to external ones, the survey said.

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