Capacity deficit in forensics and analytics to tackle corporate fraud

By: | Published: July 17, 2015 9:25 PM

P.V. Rama Sastry, IG of Police, National Investigation Agency, today highlighted the challenges in dealing with corporate fraud as the legal...

P.V. Rama Sastry, IG of Police, National Investigation Agency, today highlighted the challenges in dealing with corporate fraud as the legal regime matures and sees it not just as an ethical issue but one of regulation and compliance, the cost of which is extremely high.

In a special address at a workshop on ‘Forensics of Fraud Investigation’, organised by FICCI, Sastry said the magnitude of the challenge calls for public private partnership and training and capacity building of the enforcement agencies to tackle the problem, especially in areas such as forensics, digital data and big data analytics.

The need of the hour was to objectively assess the cost of implementing a formal compliance program against the high cost of tackling fraud and its impact.

Sastry said that the government recognized the importance of curbing corporate fraud. Hence, it enacted the Companies Act 2013, which comprehensively focuses on fraud risk management and prescribes stringent punishment upon violation of its provisions. He added that the amendments in Prevention of Corruption Act, which are pending in Parliament, would further strengthen the legal framework to deal with corporate fraud.

Sastry said that in the last two to three years there has been a sea change in India’s legal regime, which now looks at corporate fraud as a compliance, regulatory and enforcement issue, rather than just an unethical practice. He added that the cost of non-compliance has increased manifold.

Speaking about the challenges, Mr. Sastry said that there was a capacity deficit in forensics and analytics in the public and private sectors. This presented a huge opportunity for private sector. He suggested that training and capacity building could be undertaken in Public Private Partnership mode to counter corporate frauds.

Taking a cue from The US Foreign Corrupt Practices Act (FCPA), which prohibits businesses from bribing foreign officials, Mr. Sastry said with increasing cross-border business activities, the Indian government was also formulating a legal framework which would encourage foreign investments and create a business-friendly environment.

On the occasion, Sastry released a FICCI-EY paper on forensics of fraud investigation.

In his theme address, Kartikeya Nath, Director, Fraud Investigation & Dispute Services (FIDS), EY, the knowledge partner of FICCI for the workshop, said that effective due diligence could 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 commercial transactions. In this regard, forensic technology can help in the risk management functions of organizations by creating a competitive advantage for them to improve their business performance. He added that financial services sector, had become more prone to corporate fraud in the recent past.

Information today is readily available in public domain, said Nath and added that it enabled a person to make informed decisions. Also, the new government’s agenda of making citizens IT-enabled would ensure that information was readily available to investors and corporates and would give a new dimension to due diligence.

According to EY’s Fraud Survey 2015 to assess the reality of the threat of fraud, bribery and corruption across the region, Businesses are operating in an exceptionally challenging environment, but management is under increased pressure to find new ways to grow their business. Furthermore, manipulation of financial results is prevalent and fast track techniques for rapid growth may lead to unnecessary risk-taking behavior. However, effective compliance is a requirement for sustained success.

Sumeet Gupta, Director, FICCI, said that FICCI has initiated capacity-building programmes and workshops as an attempt to increase awareness about white collar crimes. According to FICCI’s ‘India Risk Survey-2015’, ‘corruption, bribery and fraud’ was perceived as the top most risk by corporates. This workshop is a step in the direction of addressing such risks, he added.

He said that the study on forensics of fraud investigation would enable companies to decipher the evolved dynamics of fraud, bribery and corruption. It also provides insights on the related regulatory upheaval and enhanced technological advancements to enable companies to utilize the knowledge as tools to tackle fraud.

According to the FICCI-EY paper, to meet significant compliance risks facing businesses, India Inc. need to recognize that policies and training are really only a starting point. The clear guidance from regulators is that this is not enough. Boards should be demanding that their organizations go beyond basic building blocks.

It is essential to make concerted, risk-focused efforts that target areas of potential exposure to fraud, bribery and corruption, and the management needs to lead by example. Organizations should strike an appropriate balance for growth and maintain ethical business conduct while seizing opportunities in these challenging economic conditions.

Organisations should consider the following factors in relation to fraud risk management, These include Whistle-blowing mechanisms – speak-up channels; Training; Role of technology; Periodic assessment of risk; Due diligence; Fraud-response plan; Action against fraudsters; and Enforcement of company and regulatory policies.

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