61% of economic crimes committed by employees, says survey

The top three industries in India susceptible to economic crimes are financial services, manufacturing and professional services

Over one in four organisations in India is affected by economic crime, finds the India edition of PwC’s Global Economic Crime Survey for 2016.

In a survey covering 17 industry sectors, 31 per cent of the respondents in India said they had experienced economic crime in the last two years.

Around 73 per cent of the Indian respondents said their organisations suffered losses on account of economic crimes up to $1 million, while 16 per cent estimated the losses were over $1 million in the last 24 months.

The survey found 61 per cent of economic crimes in India were committed by employees within organisations.

While focusing on the impact of evolving regulatory requirements and technology on economic crime, the survey found key economic crimes in India were asset misappropriation (71 per cent), procurement fraud (44 per cent), bribery and corruption (41 per cent), accounting fraud (24 per cent), human resource fraud (21 per cent), and cybercrime (16 per cent).

Cybercrime was the fastest growing economic crime, with 56 per cent of Indian respondents perceiving an increased risk of cyber-breaches over the past two years. Close to 50  per cent of Indian respondents felt law enforcement agencies did not have the required skills and resources to investigate cybercrime, hacking incidents and malware-related fraud.

The top three industries in India susceptible to economic crimes were financial services, manufacturing and professional services, the survey said.

“A rising number of incidents, both within organisations and in the economy, clearly indicates that we are dealing with a problem that is endemic and has a significant magnitude,” said Dinesh Anand, partner and leader, forensic services India, PwC.

While there has been a renewed focus on ethics and compliance among Corporate India - 88 per cent of the responding organisations have a formal business ethics and compliance programme and 56 per cent witnessed an increase in their spending on compliance programmes and resources - the survey brought out the clear difference between perception and reality.

Around 94 per cent of the Indian respondents stated their organisations had a clear code of conduct. However, 15 per cent indicated their leaders did not walk the talk, 24 per cent mentioned unclear communication and training, and 19 per cent feared retaliation for reporting a violation.

While employees are seen as the main perpetrators of most serious economic crimes (61 per cent), the survey painted the profile of a fraudster as someone who was an educated male, in the age group of 31-40 years and at a junior-to-middle level in the organisation.

When it comes to detecting fraud in India, the survey found that internal tip-offs remained the most effective (22 per cent), followed by routine internal audits (13 per cent), whistleblower hotlines (12 per cent) and suspicious transaction reporting (12 per cent).

Globally, the survey revealed that 14 per cent of respondents regarded suspicious transaction reporting as the most commonly used method to detect fraud, closely followed by routine internal audits (11 per cent), internal tip-offs (11 per cent) and detection by accident (11 per cent).

“As compared to 74 per cent of financial institutions (FIs) globally, 56 per cent in India have performed an anti-money laundering/combating the financing of terrorism (CFT) risk assessment across their business and geographies,” the report said.

Around 12 per cent of financial institutions in India found this assessment to be unnecessary. However, 6 per cent of Indian FIs reported that this was a focus area in the next 12 months.