India is an emerging country with a plethora of opportunities. As a potential market, it is in the blueprint of many global giants who are planning to expand business. But these opportunities come fraught with
numerous risks and challenges like fraud bribery and corruption. These risks are growing concerns for Indian companies as well. A major challenge faced by the senior management of a company in
addressing these risks is the lack of awareness. In the recent scams have resulted in increased regulatory in activism. Existing Acts are being amended
and updated to address the new and complex threats. Regulators are proposing more stringent standards for fraud prevention, detection and reporting.
For instance, various measures proposed in the companies Bill 2011 which is slated to replace the companies Act 1956. One of the proposed measures is formation of a financial reporting body “National
Financial Reporting Authority (NFRA)” for better monitoring of corporate financial management. This body will have quasi-judicial powers to investigation, levy penalty and bar professionals from practice in
case of their indulgence in professional or other misconduct . such authority will have the mandate to ensure scrutiny and compliance of accounting and auditing standards. It will also ascertain the quality of
service of professionals associated with compliance. The new bill seeks to provide more teeth to serious fraud investigation office (SFIO). It is proposed that SFIO will be a statutory body with enforcement
powers, including arrest, focus on protection of investors with recognition of class action suits and provision for nomination of directors by small shareholders and stricter role for auditors including
rotation. The investigation report of SFIO, filed with the court for framing of changes, would be treated as a report from a police officer.
Currently under various regulation like Clause 49 of the listing agreement, the CEO and CFO of a company, in their certification have to confirm that there are, to the best of their knowledge and belief, no
fraudulent /illegal transactions entered into by the company during the year. Also, as per Companies (Auditor’s Report) Order (CARO) 2003, the auditor has to report whether any fraud by or on the
company was noticed or reported along with its nature and amount. Enhanced globalization has added to the list of regulations that companies have to adhere to.
Governments around the world, in an attempt to address bribery and corruption risks, have introduced anti‐corruption legislations like US FCPA and UK bribery act which have extra‐territorial jurisdiction. Bribery and corruption continue to be some of the biggest challenges for companies, and the risk is compounded by increasing enforcements and stricter penalties.

Some risk prone and vulnerable areas

► Employees of a company have access to the company’s and its customer’s confidential and
sensitive information, which can be misused by an unscrupulous current or ex employee
► Vendor initiated frauds to deceive company by way of overcharging or under delivery
► Payables and Receivables mismanagement leading to financial loss to company
► Funds and inventory defalcation or theft by employees / vendors
► Expenses misappropriation / overcharging by employees and third party vendors
► Theft of sensitive information related to customers, tenders, contracts, acquisitions, and IP
► Misuse of schemes and rebates
► Bribery and inappropriate treatment of government officials and other parties
Clause 49 of the listing agreement, the CEO and CFO of a company, in their certification have to
confirm that there are, to the best of their knowledge and belief, no fraudulent /illegal transactions entered
into by the company during the year. Also, as per Companies (Auditor’s Report) Order (CARO) 2003,
the auditor has to report whether any fraud by or on the company was noticed or reported along with its
nature and amount.
Enhanced globalization has added to the list of regulations that companies have to adhere to.
Governments around the world, in an attempt to address bribery and corruption risks, have
introduced anti‐corruption legislations like US FCPA and UK bribery act which have
extra‐territorial jurisdiction. Bribery and corruption continue to be some of the biggest challenges for
companies, and the risk is compounded by increasing enforcements and stricter penalties.
Some risk prone and vulnerable areas

► Employees of a company have access to the company’s and its customer’s confidential and
sensitive information, which can be misused by an unscrupulous current or ex employee
► Vendor initiated frauds to deceive company by way of overcharging or under delivery
► Payables and Receivables mismanagement leading to financial loss to company
► Funds and inventory defalcation or theft by employees / vendors
► Expenses misappropriation / overcharging by employees and third party vendors
► Theft of sensitive information related to customers, tenders, contracts, acquisitions, and IP
► Misuse of schemes and rebates
► Bribery and inappropriate treatment of government officials and other parties

A strategic move: proactive fraud risk management

The first step a company should take in its quest to address fraud, bribery and corruption risks is to do a fraud risk assessment. This will help in identifying the vulnerable areas and indicate the
key red flags. These findings will then become foundation for a comprehensive and effective fraud risk management plan. Most important element, required for making any such plan a success, lies in the
hands of the senior management. Hence, setting the “tone at the top” is essential to bring about the
change. We have seen a considerable increase in the number of companies opting to undertake proactive fraud
risk management compared the previous year. This is an encouraging sign which indicates a better future for corporate governance in India. This paper is authored by Arpinder Singh, Partner & National Director – Fraud Investigation and; Dispute Services, Ernst & Young India. The opinions expressed in this article are the author's own
and do not reflect firms view.

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. For more information, please visit www.ey.com/india (http://www.ey.com/india)
Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. This news release has been issued by Ernst & Young Private Limited which is one of the Indian client
serving member firms of Ernst & Young Global Limited. Ernst & Young Pvt. Ltd. is a company registered under the Companies Act, 1956 having its registered office at Block C, 3rd Floor, 22 Camac Street, Kolkata – 700016 ‘Corruption’, the term which sounds very unfavourable and is pessimistic or perverted view of many fields in today’s world, among which Corporate is one, which is mostly coloured with corruption. According to many political thinkers and sociologist like Karl Marx believes that capitalist supress and exploit common people and consumers through undue marketing strategy to have control over them for attainment of personal economic interest. Sometimes Capitalist have great influence in establishment of government by funding and other evil
practices. And once these types of tyrant government come into power, they pursue work for the fulfilment and satisfaction of capitalists rather working for the common interest of the people of state to whom they (government) are responsible.

Corporate Corruption

Any corporation or employee of a corporation who, in their dealing with a public official and seeking benefits for himself or any third party, engages in behaviour which promotes the
violation of law or abuse of power on the part of the government official. Scope of Corporate Corruption
Modern understanding of Corporate Corruption has recognized that there are a myriad of ways that the private sector might pervert governmental processes. The modern convention dealing
with corruption have adopted a more comprehensive approach and, in a significant development , have included recovery of assets, a major concern for countries that pursue the
assets of former leaders and other officials accused, or found to have engaged, in corruption.

Corporate Power and Influence

As pessimistic view of human nature, the colossal economic clout of today’s corporation has manifested itself in the political process. Corporate world now wield an enormous amount of
influence in the political sphere. It is well known fact that one cannot expect to be elected to government office without a huge wad of money to spend in elections. those who control
corporate coffers as all too eager to oblige the needy candidate as long as there is a good chance the company will benefit from it. When corporate funds grease the wheels of politics,
corporate exploits go largely unchecked. One of the human lesson in human history is that every unchecked power tends to become a corrupting force.
Our Democracy “for the people” has been transformed into a government for the highest bidder.

Consequences of Corporate Corruption

Corruption is one of the worst enemies of business because it can result in far reaching consequences, including total closure of the company. Corruption in business involves misappropriation of funds, bribery, misuse of office by company officials and dishonesty in financial matters. There are some major consequences of Corporate Corruption:

 It ruins politics and promote evil practices in politics by making politicians puppets.
 It enforces illegal and self centered execution
 It corrodes trust in government
 It causes stability in economic growth of state
 Kills business opportunities for honest and beginners.
 Also cause loss of corporate reputation and credibility.
 It leads to suppression of innovation and creativity.
 It increases the cost of doing business by an average of 10%.
 Respect for authority evaporates in the wake of corruption, anger and resentment build
and economic inequalities grows.
 Discouragement of shareholders and investors.

The last decade has seen significant coverage of corporate fraud in the Indian media. While the Indian government has passed several laws aimed at curbing fraud,1 poor enforcement has diluted the intended impact. With the rise of new business models backed by technology, fraud has spawned new variants and seems to be on the rise. Around 56 percent of our survey respondents believe that fraud will continue to increase in the coming years Traditional schemes2 dominate the fraud landscape Despite the extensive adoption of technology by organizations to build global business models, corporate India
continues to face challenges in mitigating traditional fraud schemes. According to our survey respondents, diversion/ theft of funds or goods, bribery and corruption, and regulatory non-compliance were the top three fraud concerns faced by their organizations. Further, over 50 percent of survey respondents felt that procurement, sales and distribution functions were most vulnerable to fraud, indicating that greater business exposure to external stakeholders such as vendors, suppliers, customers, and distributors could significantly increase the risk of fraud.

Around 28 percent of the survey respondents have indicated that their organizations did not experience any fraud in the last two years. In our experience, organizations with robust internal controls detect red
flags regularly and investigate them for potential fraud. In the absence of red flags or fraud, we would recommend that organizations re-look at their controls and test them for effectiveness.
In our view, insufficient mechanisms to prevent and detect fraud, as well as limited enforcement of internal controls are likely to be the reasons that organizations continue to experience traditional fraud. Specifically in the area of bribery and corruption, organizations have, in the past, considered bribery as the ‘cost of doing business’, and
hence demonstrated a degree of acceptability towards this practice. But with increased scrutiny by foreign regulators, and the Indian government taking a tough stand on bribery by enforcing legislations like the Prevention of Corruption Act while passing judgments on cases, we are seeing several companies taking efforts to address the
risk of bribery and corruption. Tackling bribery and corruption The majority of survey respondents have indicated that their organizations are considering implementing a formal code of conduct and ethics policy with a dedicated section on tackling bribery and corruption, followed by imparting periodic trainings to employees on understanding and dealing with various forms of corruption. This behavior is
indicative of the changing attitudes to bribery and corruption in corporate India. It is believed that the way the senior management deals with external stakeholders (regulators, suppliers,
customers etc.) has a strong bearing on how the employees of the organization perceive the business is run. Hence, the tone-at- the-top and actions of the senior management are a critical measure of how successful an anti- bribery and corruption program is/ will be. However, we noted that a relatively small portion of the survey
respondents considered this aspect when they wanted to tackle bribery and corruption. Our interpretation is that while, corporate India acknowledges that the process of mitigating the risk of bribery and corruption is ongoing, it feels that policies and procedures may be sufficient guides to help drive positive behavior among employees.
Contributors to fraud Survey respondents attributed the prevalence of fraud risks to the lack of efficient internal controls/compliance systems, diminishing ethical values and inadequate due diligence of employees/third parties.
In our experience, we have observed that many companies do not spend enough time building obust backend systems to manage fraud risks. While Indian businesses use technology to monitor transactions, there is room for significant automation of processes and controls. Human touch points continue to monitor and manage technological controls. People managing these processes can be compromised or may unintentionally overlook certain aspects of compliance in a bid to focus/ support growth. For instance, during the growth phase, companies tend to put pressure on executives to grow the business, often linking compensation to achievement of business targets. In such instances, compliance and fraud risk management processes tend to get ignored, given the heightened single-minded focus on growth. In light of the socio-economic developments over the years, and the potential for growth in the future, there is a rise in aspiration levels among people. At times, the need to fulfil these aspirations can lead to a tendency to compromise on ethical values. Therefore, we believe it is imperative for companies to invest in developing a robust code of conduct and follow it up with a comprehensive program to ensure that the code is imbibed by employees in their day- to-day business activities.

Electronic Commerce (E-commerce) encompasses all businesses conducted by the use of computer networks. The Indian e-commerce industry is currently valued at approximately INR 224 billion and is
growing at the rate of 50-55 percent annually. It is expected to be approximately INR 504 billion large in the next two years10. Currently travel related bookings such as flight ticket, rail ticket and hotel bookings form the largest chunk of the e-commerce industry followed by online retail of consumer goods. The primary reason for the growth of the e-commerce industry has been the increasing internet penetration in India. In 2006 there were only 21 million active internet users, whereas in June 2014, there were close to 243 million users11. This rise in the number of people familiar with, and able to
access the internet, has spurred the development of online marketplaces. Almost three-fourths of our survey respondents said they were comfortable doing business online, although they
considered some aspects of e-commerce transactions prone to the risk of fraud. Online payments, procurement of materials, and trading in stock markets were identified as areas vulnerable to fraud risks. This is in line with global research which indicates that e-commerce payment fraud is on a rise. US-based research data shows that the value of fraudulent transactions is often four times the value of a regular transaction12.

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