Fighting Fraud Fiercely - The roundtable on 'Outpacing Fraud'

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In a revolutionary step to help India to move from detection to prevention and outpace the fraudster through the use of technology and other measures by creating a culture of
compliance, The Economic Times along with KPMG organised a roundtable on 'Outpacing Fraud' in Gurgaon, where eminent personnel from various regulatory bodies and industry congregated to discuss and provide perspectives on how organisations can prevent, detect and respond to risks of fraud.

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Fighting Fraud Fiercely - The roundtable on 'Outpacing Fraud'

  1. 1. >> pg 27 CONSUMER CONNECT INITIATIVE ADVERTORIAL & PROMOTIONAL FEATURE THE ECONOMIC TIMES, FRIDAY, JANUARY 31, 2014 GURU SPEAK A coming together of regulators and enforcement agencies, and sharing of databases would help in addressing some of the emerging fraud issues. BALWINDER SINGH advisor, Ministry of Corporate Affairs Fraudsters are generally faster and more tech savvy. Enforcement agencies, regulators and the judiciary need to keep up with them in their understanding of such crimes. D SIVANANDHAN former commissioner of police, Mumbai & DGP, Maharashtra FIGHTING FRAUD FIERCELY The roundtable on 'Outpacing Fraud' was a congregation of great minds to provide perspectives on how organisations can prevent, detect and respond to fraud TARSHANT JAIN ndia is getting ready to develop mechanisms to curb fraudsters. But the challenge is that, it is witnessing a continuous change in the nature of frauds and profile of fraudsters. Evolution of fraud and managing it is a leading concern for companies, governments and regulators across the globe. Whether it is the "enemy within" or unscrupulous outsiders, there is a greater focus on managing existing and emerging risks. In a revolutionary step to help India to move from detection to prevention and outpace the fraudster through the use of technology and other measures by creating a culture of compliance, The Economic Times along with KPMG organised a roundtable on 'Outpacing Fraud' in Gurgaon, where eminent personnel from various regulatory bodies and industry congregated to discuss and provide perspectives on how organisations can prevent, detect and respond to risks of fraud. Sandeep Dhupia, head of Forensic Services, KPMG India in his welcome address referred to a study KPMG did and revealed the characteristics of a fraudster. I So, if one are a male aged 36 to 45, are in a middle to senior management role in an organisation, have been with the organisation from 1 to 4 years, are a high performer, got great respect in your organisation and in addition to that, happen to have an engineer background you fit the profile of a typical Indian Fraudster. Hema Ramachandran, senior editor of The Economic Times moderated the session and touched upon various aspects of evolution of fraud in India. As preventing, detecting and investigating fraud go hand in hand and clearly the return on investment in terms of investing in preventing fraud is clearly much higher given how cost effective it is to prevent fraud rather than to have to deal with fraud. The panel revealed the secret to outpace fraud at its nascent stage by profiling fraudsters and by highlighting evolving nature of regulatory framework in fighting fraud. People show great confidence and trust in the organisations that have the reputation for integrity. Unfortunately, fraud and misconduct can seriously impact this confidence exposing an organisation to legal, regulatory, or reputational damage. That is why proactive business leaders are working towards mitigating this risk and ensuring effective implementation of fraud management tools. This is especially important in an environment marked by intense scrutiny and rising enforcement. Fraud management is increasingly attaining attention as various stakeholders have begun to comprehend the negative FRAUD FOLLOWS OPPORTUNITY AND ATTACK WEAKNESS. SO YOU NEED TO KNOW WHERE YOU ARE AT RISK AND HOW TO TAKE CONTROL. Organisations should ask themselves: ● Can fraud impact me? ● Are my software applications equipped to prevent fraud? ● Can I report a suspicious activity without fearing harassment? ● Will a vendor's non-compliance impact my business? effects of uncontained risk. The panel further shared the importance of an effective fraud risk management framework that can enable organisations to have controls that first prevent the fraud from occurring, detect as soon as a fraud happens and respond effectively to fraud incidents when they occur. Therefore, a timely detection of fraud incidents will go a long way in containing the losses and increasing the chances of recovery. As fraud incidents are reportedly increasing in India, it is now the right time for various Beat the cheat Sandeep Dhupia, head of forensic, KPMG in India discusses what organisations should do to outpace fraud evels of corruption and fraud seem to be reaching a tipping point; however, efforts remain concentrated on responding to or investigating a fraud. If companies are to 'Outpace Fraud' they must focus their efforts on the early stages of its lifecycle. Many companies believe their fraud risk is adequately managed by internal and external audit, seeing no need for specific fraud risk management - leading to a false sense of security. The focus must move towards prevention. The enemy usually lies within - a majority of the frauds are perpetrated by employees and often it is not a solo act but a case of collusion. 'Cyber' is the new kid on the block. There is probably not sufficient realisation as to how exposed our systems are to loss of sensitive information. Technology is lowering the barriers for a new breed of cheats. Companies need to take matters in their own hands. Here are four L organisations to ensure that their current fraud risk management strategies are revised to ensure that they are in line with the current fraud trends to take care of future growth and prevent themselves from potential threats in the future. Sharing a global characteristic of a fraudster and the nature of fraud and how is it been practical, easily implementable and cost effective measures companies can implement to prevent/detect fraud. PRE-EMPLOYMENT BACKGROUND SCREENING Employees are generally central to frauds and in a majority of cases either perpetrate the fraud or assist an outsider in so doing. Companies should therefore, exercise greater diligence when recruiting. In a competitive market, the demand for 'fake' experience certificates and manipulated documents (that exaggerate salary/designation/ tenure etc.) has increased multi fold. According to a KPMG in India analysis of confidential data handled over a three year period , 10 per cent of total employment related discrepancies have arisen due to an association with a possible fake/suspicious company. WHISTLEBLOWER MECHANISM Whistleblowers/anonymous tip offs are the most effective means to detect ● How do I verify credentials of the person I am hiring? ● How do I prepare myself for litigation? ● Is an in-house counsel sufficient? ● Can a facilitation payment be construed as a bribe? ● And many more. changing, Petrus Marais, global head of forensic, KPMG revealed that the characteristics of a fraudster are pretty consistent globally, from a personality point of view. He shared that fraudsters are generally wellliked, overtly friendly and their lives are like a party. It is alarming that amongst the percentage of frauds against employers, the vast majority of fraudsters are primarily within the organisation. Sharing the changing trends, he shared that there were two types of trends that have emerged as fraud. Implementing an effective mechanism involves an independent, anonymous and confidential process that is easy to access and ensures strong whistleblower protection against retaliation. Employees prefer anonymity - an analysis of over 2000 whistleblower complaints handled by KPMG's Ethics Helpline reveals that nearly 75 per cent of the whistleblowers chose to remain anonymous and another 8 per cent were only prepared to reveal their identity to the KPMG ethics helpline professionals on the assurance that this will not be passed on to their employer. DATA ANALYTICS Data analytics technology no doubt enables the fraudster, but also enables organisations to defend themselves. New approaches using data analytics and data mining give a company a much better chance of getting to a fraudster. Data mining deals with extracting data in all forms from a system, including laptops, mobile phones, emails, MIS reports, financial transactions and any other record. THIRD PARTY DUE DILIGENCE As companies thrive on expanding global presence by building new business relationships with counterparties, they must be cognisant of the exposure to various fraud risks. Managing business relationships with third parties is an extremely sensitive issue that needs to be handled appropriately. particularly significant. One of them was the increasing percentage of frauds that are committed collusively, either collusive internally or collusive with external parties. It might be because of the organisation they are coming are more complex and more multi national. And secondly, the tool of the trade is wearing towards technology. Frauds can be committed remotely, without physical risk, anonymously and with increasing level of sophistication. At high level, that is what is happening on the global landscape. In a national perspective, lack of effective corporate governance seriously undermines any fraud risk management programme. Therefore, organisations require more than just ensuring an effective system of internal controls. It also requires a strong anti-fraud stance and proactive, comprehensive approach engaging employees and devising whistleblower strategies in combating fraud as a pre-requisite to become less vulnerable to frauds. Cyber is the future of fraud and prevention is better more cost effective than cure. A timely detection of fraud incidents will go a long way in containing the losses and improving the chances of recovery. It is now time for organisations to ensure that their current fraud risk management strategies are revised to ensure that they are in line with the current fraud trends and adequate to take care of future growth, besides increasing ways of detecting frauds proactively. A lot of frauds we are seeing are very highly technologically refined frauds, and many are management perpetuated. Such frauds miss a lot of safeguards and are the most difficult to detect. AJAY BAHL AZB & Partners Sometimes the ignorance of policy can also lead to breach of policy. So, it is very important to define the policies and train your people, this again works as a preventive measure. GAURAV AJMANI principal legal counsel, Amazon India Most corporates in India view corruption and fraud as a mere cost line item on their P&L. I think regulators will have a huge role to play for this view to change. SANDEEP DHUPIA head of forensic, KPMG in India A culture of integrity needs to become a business imperative, like operational efficiency and increased margins are business imperatives. It is not just about the tone at the top, but also tone at the middle and tone at the bottom. RICHARD GIRGENTI head of forensic for Americas, KPMG The number one way in which misconduct is detected is through employees. Unless employees are willing to acknowledge that there is something wrong in the organisation and until the organisation supports them by having strong anti-retaliation procedures, you can never say that you have developed an effective program to detect fraud. PETRUS MARAIS global head of forensic, KPMG Petrus Marais, global head of forensic, KPMG talks about how it is important to have the right regulatory, law enforcement and judicial framework to fight fraud and fraudsters INTERVIEW Getting freed from fraud How would you outpace fraud, and fraudsters? The strategy to outpace needs to be multi-pronged. At a macro level, it is important to have the right regulatory, law enforcement and judicial framework. In India, recent changes with respect to the Companies Act, responsibilities of Independent Directors, and auditor rotation are positive steps, but there is still a long way to go before these become effective in letter and spirit. At a company level, there is a need to build the right culture, driven by the tone at the top. This needs to be further supplemented by effective controls in business processes using technology to prevent and detect fraud. In addition, other forms of fraud prevention and detection such as hotlines and other reporting mechanisms need to be implemented. What are companies doing to address fraud risks in other parts of the world? We see that a number of companies are proactively preparing to fight fraud. There are a variety of tools and techniques being used, such as data analytics procedures that are performed on areas prone to fraud such as procurement and other forms of spend. Companies are performing fraud risk assessments of key processes. Many companies are articulating key policies such as code of conduct, anti-bribery policies, whistleblower policies, anti-retaliation policies, information security policies etc. and then training personnel on these regularly. Most companies in the developed countries have robust whistleblower mechanisms in place. The effort is in creating a culture of compliance and integrity. These safeguards must not just be within the company, but must include all stakeholders associated with the company. Do your global clients face specific challenges in developing economies? In developing economies regulatory frameworks are still evolving and companies primarily focus on growth and margins, as a result internal processes and controls tend to receive lesser attention leading to significant exposure to fraud, contractual disputes and non-compliance. As a result, we are also seeing tremendous growth in our forensic practices in developing economies. Our Forensic businesses in the BRIC countries and other emerging economies fall within our top 15 Forensic practices globally India and Chinaare the fastest growing, with the others being South Africa, Russia and Eastern Europe. Our India forensic business is among the top 3 by revenue across the KPMG network.

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