Forensic auditors to the fore on increasing white-collar crimes

Written by Ankit Doshi | Mumbai | Updated: Feb 24 2014, 21:02pm hrs
Corporate fraudUnofficial estimates value the practice at Rs 400-500 crore annually. Reuters
Corporate fraud is on the rise in India, compelling more managements to conduct forensic audits. Experts on white-collar crimes say forensic accounting is not just gaining prominence, the methods are changing fast. Unofficial estimates value the practice at Rs 400-500 crore annually but it is believed this could double in the next three or four years.

Thats not surprising given how the incidence of corporate fraud is on the rise. Investigations and risk consulting firm Kroll unearthed in a recent survey that 69% of companies studied were affected by fraud in FY13, up from 68% in the previous year. The value of fraud, the study found, rose, to 71% from 67%.

Crimes are of all hues, seven in particular theft of physical assets, theft of information, corruption and bribery, internal financial fraud, vendor fraud, management conflict of interest and regulatory breach.

Insider fraud was particularly rife in India, with 89% of respondents indicating the perpetrator was an insider of some sort a junior, middle management or senior employee, or an agent.

Which is why, as Rohit Mahajan, Deloitte Forensic (India) national leader and senior director, points out, forensic audit practices have evolved significantly over the last 10-15 years. Earlier the investigations were restricted to books and records but now there is a significant element of intelligence gathering, he explains. Mahajan adds that technology and analytics have a greater play in every aspect of forensic accounting today, whether its market intelligence or human resources (HR) intelligence.

Not surprisingly, the financial sector finds itself most vulnerable to fraud. As Sandeep Dhupia,head of KPMGs forensic services in India, explains, this is due to misuse of technology and despite the presence of a strong regulator.

Data released by the Reserve Bank of India (RBI) show that public sector banks lost money to the tune of Rs 8,734 crore in the last three years on account of loans (personal, housing, corporate and others) that were disbursed against fake documents. The amount was nearly four times higher than that in 2010 of Rs 1,202 crore.

But other spaces too are exposed to fraud, which is why the scope of forensic auditing is getting wider. Whats more, chartered accountants, MBAs and lawyers are no longer solely relied upon. While they do form the core part of forensic accounting, there is now a need for financial research analysts, engineers, journalists, artists and even former law enforcement officials. As experts point out, fraud related to a toll road or competitive bidding would call for the services of a professional with insights into the infrastructure industry while a white-collar crime in financial services and issues related to stressed assets or anti-money laundering would require an understanding of the working of banks and financial intermediaries. The nature of crimes is complicated and issues such as conflicts of interests, code-of-conduct violations and regulatory non-compliance require a strong working knowledge of the sector.

More companies are waking up to the fact that corporate offences cant be wished away. Indeed, the Kroll report showed India was well above the average when it came to most crimes. Theft of physical assets 33% of companies were affected versus 28% for the survey as a whole, and corruption 24% compared with 14%. India also beat the average on internal financial fraud 22% against 16% and had an above- average incidence of information theft 24% compared with 22%. Indian companies were aware they operated in a high-corruption environment... Companies need to avoid accepting that fraud is just a normal part of business, Kroll observed.