Levels of corruption and fraudseem to be reaching a tippingpoint; however, efforts remainconcentrated on responding to

or investigating a fraud. If companiesare to 'Outpace Fraud' they must focustheir efforts on the early stages of itslifecycle. Many companies believetheir fraud risk isadequately managedby internal andexternal audit, seeingno need for specificfraud riskmanagement - leadingto a false sense ofsecurity. The focusmust move towardsprevention. Theenemy usually lies within - a majorityof the frauds are perpetrated byemployees and often it is not a soloact but a case of collusion.

'Cyber' is the new kid on the block.There is probably not sufficientrealisation as to how exposed oursystems are to loss of sensitiveinformation. Technology is loweringthe barriers for a new breed of cheats.

Companies need to take matters intheir own hands. Here are four

practical, easily implementable andcost effective measures companiescan implement to prevent/detectfraud.

PRE-EMPLOYMENT BACKGROUNDSCREENING Employees are generally central to

frauds and in a majority ofcases either perpetrate thefraud or assist an outsiderin so doing. Companiesshould therefore, exercisegreater diligence whenrecruiting. In a competitivemarket, the demand for'fake' experience certificatesand manipulateddocuments (that

exaggerate salary/designation/ tenureetc.) has increased multi fold.According to a KPMG in India analysisof confidential data handled over athree year period , 10 per cent of totalemployment related discrepancieshave arisen due to an association witha possible fake/suspicious company.

WHISTLEBLOWER MECHANISM Whistleblowers/anonymous tip offsare the most effective means to detect

fraud. Implementing an effectivemechanism involves an independent,anonymous and confidential processthat is easy to access and ensuresstrong whistleblower protectionagainst retaliation. Employees preferanonymity - an analysis of over 2000whistleblower complaints handled byKPMG's Ethics Helpline reveals thatnearly 75 per cent of thewhistleblowers chose to remainanonymous and another 8 per centwere only prepared to reveal theiridentity to the KPMG ethics helplineprofessionals on the assurance thatthis will not be passed on to theiremployer.

DATA ANALYTICSData analytics technology no doubtenables the fraudster, but also enablesorganisations to defend themselves.New approaches using data analyticsand data mining give a company amuch better chance of getting to afraudster. Data mining deals withextracting data in all forms from asystem, including laptops, mobilephones, emails, MIS reports, financialtransactions and any other record.

THIRD PARTY DUE DILIGENCEAs companies thrive on expandingglobal presence by building newbusiness relationships withcounterparties, they must becognisant of the exposure to variousfraud risks. Managing businessrelationships with third parties is anextremely sensitive issue that needs tobe handled appropriately.

TARSHANT JAIN

India is getting ready todevelop mechanisms to curbfraudsters. But the challengeis that, it is witnessing a

continuous change in the natureof frauds and profile offraudsters. Evolution of fraudand managing it is a leadingconcern forcompanies,governments andregulators acrossthe globe.Whether it is the"enemy within" orunscrupulous outsiders, there isa greater focus on managingexisting and emerging risks.

In a revolutionary step to helpIndia to move from detection toprevention and outpace thefraudster through the use oftechnology and other measuresby creating a culture ofcompliance, The EconomicTimes along with KPMGorganised a roundtable on'Outpacing Fraud' in Gurgaon,where eminent personnel fromvarious regulatory bodies andindustry congregated to discussand provide perspectives onhow organisations can prevent,detect and respond to risks offraud.

Sandeep Dhupia, head ofForensic Services, KPMG India inhis welcome address referred toa study KPMG did and revealedthe characteristics of a fraudster.

So, if one are a male aged 36 to45, are in a middle to seniormanagement role in anorganisation, have been with theorganisation from 1 to 4 years,are a high performer, got greatrespect in your organisation andin addition to that, happen tohave an engineer background -you fit the profile of a typical

Indian Fraudster.Hema

Ramachandran,senior editor ofThe EconomicTimes moderatedthe session and

touched upon various aspects ofevolution of fraud in India. Aspreventing, detecting andinvestigating fraud go hand inhand and clearly the return oninvestment in terms of investingin preventing fraud is clearlymuch higher given how costeffective it is to prevent fraudrather than to have to deal withfraud. The panel revealed thesecret to outpace fraud at itsnascent stage by profilingfraudsters and by highlightingevolving nature of regulatoryframework in fighting fraud.

People show great confidenceand trust in the organisations thathave the reputation for integrity.Unfortunately, fraud andmisconduct can seriously impactthis confidence exposing anorganisation to legal, regulatory,or reputational damage. That iswhy proactive business leaders

are working towards mitigatingthis risk and ensuring effectiveimplementation of fraudmanagement tools. This isespecially important in anenvironment marked by intensescrutiny and rising enforcement.Fraud management isincreasingly attaining attention asvarious stakeholders have begunto comprehend the negative

effects of uncontained risk. The panel further shared the

importance of an effective fraudrisk management frameworkthat can enable organisations tohave controls that first preventthe fraud from occurring, detectas soon as a fraud happens andrespond effectively to fraudincidents when they occur.Therefore, a timely detection offraud incidents will go a longway in containing the losses andincreasing the chances ofrecovery. As fraud incidents arereportedly increasing in India, itis now the right time for various

organisations to ensure thattheir current fraud riskmanagement strategies arerevised to ensure that they are inline with the current fraud trendsto take care of future growth andprevent themselves frompotential threats in the future.

Sharing a global characteristicof a fraudster and the nature offraud and how is it been

changing, Petrus Marais, globalhead of forensic, KPMG revealedthat the characteristics of afraudster are pretty consistentglobally, from a personality pointof view. He shared thatfraudsters are generally well-liked, overtly friendly and theirlives are like a party. It isalarming that amongst thepercentage of frauds againstemployers, the vast majority offraudsters are primarily withinthe organisation. Sharing thechanging trends, he shared thatthere were two types of trendsthat have emerged as

particularly significant. One ofthem was the increasingpercentage of frauds that arecommitted collusively, eithercollusive internally or collusivewith external parties. It might bebecause of the organisation theyare coming are more complexand more multi national. Andsecondly, the tool of the trade iswearing towards technology.Frauds can be committedremotely, without physical risk,anonymously and withincreasing level of sophistication.At high level, that is what ishappening on the globallandscape.

In a national perspective, lackof effective corporategovernance seriouslyundermines any fraud riskmanagement programme.Therefore, organisations requiremore than just ensuring aneffective system of internalcontrols. It also requires a stronganti-fraud stance and proactive,comprehensive approachengaging employees anddevising whistleblowerstrategies in combating fraud asa pre-requisite to become lessvulnerable to frauds.

Cyber is the future of fraudand prevention is better morecost effective than cure. A timelydetection of fraud incidents willgo a long way in containing thelosses and improving thechances of recovery. It is nowtime for organisations to ensurethat their current fraud riskmanagement strategies arerevised to ensure that they are inline with the current fraud trendsand adequate to take care offuture growth, besidesincreasing ways of detectingfrauds proactively.

THE ECONOMIC TIMES, FRIDAY, JANUARY 31, 2014CONSUMER CONNECT INITIATIVE ADVERTORIAL & PROMOTIONAL FEATURE

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How would you outpace fraud, andfraudsters?The strategy to outpace needs to bemulti-pronged. At a macro level, it isimportant to have the right regulato-ry, law enforcement and judicialframework. In India, recent changeswith respect to the Companies Act,responsibilities of IndependentDirectors, and auditor rotation arepositive steps, but there is still a longway to go before these become ef-fective in letter and spirit. At a com-pany level, there is a need to buildthe right culture, driven by the toneat the top. This needs to be furthersupplemented by effective controlsin business processes using technol-ogy to prevent and detect fraud. Inaddition, other forms of fraud pre-vention and detection such as hot-lines and other reporting mecha-nisms need to be implemented.

What are companies doing to address fraud risks in other parts ofthe world?We see that a number of companiesare proactively preparing to fight

fraud. There are a variety of tools andtechniques being used, such as dataanalytics procedures that are per-formed on areas prone to fraud suchas procurement and other forms ofspend. Companies are performingfraud risk assessments of keyprocesses. Many companies are artic-ulating key policies such as code ofconduct, anti-bribery policies, whistle-blower policies, anti-retaliationpolicies, information securitypolicies etc. and then train-ing personnel on these reg-ularly. Most companies inthe developed countrieshave robust whistleblowermechanisms in place. Theeffort is in creating aculture of compli-ance and integri-ty. These safe-guards must notjust be within thecompany, butmust include allstakeholders as-sociated withthe company.

Do your global clients face specificchallenges in developing economies?In developing economies regulatoryframeworks are still evolving andcompanies primarily focus on growthand margins, as a result internalprocesses and controls tend to re-ceive lesser attention leading to sig-nificant exposure to fraud, contractu-al disputes and non-compliance. As a result, we are also seeing

tremendous growth in our forensicpractices in developingeconomies. Our Forensic busi-nesses in the BRIC countries andother emerging economies fallwithin our top 15 Forensic prac-

tices globally India andChinaare the fastestgrowing, with theothers being SouthAfrica, Russia andEastern Europe.Our India forensicbusiness isamong the top 3by revenueacross theKPMG network.

Getting freed from fraud

Petrus Marais, global head of forensic, KPMG talksabout how it is important to have the right regulatory,

law enforcement and judicial framework to fight fraud and fraudstersSandeep Dhupia, head of forensic, KPMG inIndia discusses what organisations shoulddo to outpace fraud

GURU SPEAKA coming together of regulatorsand enforcement agencies, andsharing of databases would helpin addressing some of theemerging fraud issues.

BALWINDER SINGHadvisor, Ministry of Corporate Affairs

Fraudsters are generally faster andmore tech savvy. Enforcementagencies, regulators and thejudiciary need to keep up withthem in their understanding ofsuch crimes.

D SIVANANDHANformer commissioner of police,

Mumbai & DGP, Maharashtra

A lot of frauds we are seeing arevery highly technologically refinedfrauds, and many are managementperpetuated. Such frauds miss a lotof safeguards and are the mostdifficult to detect.

AJAY BAHLAZB & Partners

Sometimes the ignorance ofpolicy can also lead to breach ofpolicy. So, it is very important todefine the policies and train yourpeople, this again works as apreventive measure.

GAURAV AJMANIprincipal legal counsel, Amazon India

A culture of integrity needs tobecome a business imperative, likeoperational efficiency andincreased margins are businessimperatives. It is not just about thetone at the top, but also tone at themiddle and tone at the bottom.

RICHARD GIRGENTIhead of forensic for Americas, KPMG

The number one way in whichmisconduct is detected isthrough employees. Unlessemployees are willing toacknowledge that there issomething wrong in theorganisation and until the

organisation supports them by having stronganti-retaliation procedures, you can never saythat you have developed an effective program todetect fraud.

PETRUS MARAISglobal head of forensic, KPMG

Most corporates in India viewcorruption and fraud as a merecost line item on their P&L. I thinkregulators will have a huge roleto play for this view to change.

SANDEEP DHUPIAhead of forensic, KPMG in India

The roundtable on 'Outpacing Fraud' was a congregation of great minds to provideperspectives on how organisations can prevent, detect and respond to fraud

FIGHTING FRAUD FIERCELY

Beat the cheat

●Can fraud impact me?

●Are my software applicationsequipped to prevent fraud?

●Can I report a suspicious activitywithout fearing harassment?

●Will a vendor's non-complianceimpact my business?

● How do I verify credentials of theperson I am hiring?

● How do I prepare myself for litigation?

● Is an in-house counsel sufficient?

● Can a facilitation payment beconstrued as a bribe?

● And many more.

FRAUD FOLLOWS OPPORTUNITY AND ATTACKWEAKNESS. SO YOU NEED TO KNOW WHEREYOU ARE AT RISK AND HOW TO TAKE CONTROL. Organisations should ask themselves:

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