fraud

Over 95% organisations in India have experienced ‘new fraud’ incidents in the past two years: Survey

Emerging threats around ESG reporting fraud, anti-embargo fraud and supply chain fraud could cause major business disruption over the coming years

Following the outbreak of the COVID-19 pandemic, the uncertainties associated with it, and the subsequent shift to digital operations and remote working, businesses have been exposed to new risks related to digital security, employee safety and disinformation. These in turn have led to new incidents of fraud: 52% of Indian companies experienced fraud or economic crime in the last 24 months and an overwhelming 95% of these have experienced new types of fraud as a result of the disruption caused by COVID-19. This is according to the PwC’s recent report Global Economic Crime and Fraud Survey 2022: India Insights.

Nearly 67% of organisations in India that experienced fraud reported that the most disruptive incident came via an external attack or collusion between external and internal sources. This proportion was 56% in our 2020 survey.

On the bright side, companies in India have been undertaking fraud prevention measures to combat fraud which are working – 52% of Indian organisations experienced fraud or economic crime within the last 24 months, as opposed to 69% in our 2020 survey.

Puneet Garkhel, Partner and Leader, Forensics Services, PwC India, said: ‘With organisational perimeters becoming more vulnerable over the past two years, it is imperative for businesses to not only continually focus on policies, training and internal controls but also prioritise investing in sophisticated technologies to manage and mitigate the evolving nature of frauds. It is increasingly becoming important for organisations to understand the end-to-end life cycle of customer-facing products and also strike a balance between user experience and fraud controls. Over time, formidable actors become better at exploiting cracks.’

The new types of fraud experienced by companies include misconduct risk (67%), legal risk (16%), cybercrime (31%), insider trading (19%), and platform risk (38%). Misconduct was the biggest challenge faced by organisations as bad actors began collaborating and taking advantage of pandemic-related uncertainty and volatility. Amongst organisations that reported fraud, conduct risk (or risks associated with individuals within the firm, or vendors, agents and customers) was the biggest threat at 90%.

Fraud and economic crimes impact both big and small firms. However, the survey found fraud to be more prevalent amongst big firms: 60% of companies surveyed in India having global annual revenues above USD 1 billion experienced fraud during the past 24 months (globally, 52% of organisations with revenues over USD 10 billion experienced fraud). The impact on smaller companies was less extensive as only 37% of companies in India with global annual revenues below USD 100 million experienced fraud during the past 24 months (global: 38%).

Surge in customer fraud

Our 2020 survey had found cybercrime, accounting/financial statement fraud, and bribery and corruption to be the top three frauds in India. Though globally, the findings of this year’s survey are similar to those of our 2020 survey, for India, the top frauds have changed significantly. In India, customer fraud (e.g. frauds involving mortgage, credit cards, claims, cheques) was the top fraud reported by 47% of companies. Cybercrime came a close second, with 45% of Indian organisations reporting this type of fraud. Further, KYC failure was experienced by 34% of Indian firms that experienced fraud, corruption or economic/financial crime in the last 24 months.

Emerging threats

Indian organisations are facing multiple emerging risks that have the potential to cause greater disruption in the coming years. One such area is ESG reporting fraud (the act of altering ESG disclosures so that they do not truly reflect the activities or progress of an organisation) — 12% of organisations experienced ESG reporting fraud. Companies in India are facing several challenges in managing risks associated with ESG targets and reporting requirements, such as a general lack of understanding about ESG (reported by 45% of organisations surveyed), lack of ownership over ESG in the organisation (at 42%) and inability to accurately monitor or report ESG metrics within the organisation (46%). As ESG continues to increase in importance for stakeholders, the incentive to commit fraud in this area is likely to grow.

Another emerging area of disruption is anti-embargo fraud (participation in unsanctioned foreign boycotts, or when an organisation is tricked into breaking an embargo). Though just 9% of organisations experienced anti-embargo fraud over the last 24 months, this may change in the next two years as global sanctions rise to the highest levels in recent history.

Supply chain fraud also has the potential to cause greater disruption in the coming years – 19% of organisations experienced it in the last 24 months.

Organisations also experienced increased risk due to customer fraud (30%) and KYC failure (22%) as a result of disruption caused by COVID-19. Globally, these percentages were much lower – 17% for customer fraud and 10% for KYC failure. With an increase in digital banking and payments, KYC fraud is another emerging risk that organisations need to watch out for.

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