Corporate Frauds Its Impact to

Economy
and
Business
Environment

SOUMENDRA ROY, ASST. PROF.,

IIBS NOIDA

HOME TRUTH
Utkoch

is a Sanskrit word

which

means bribe
Bribery and kickback has been present in this
sub-continent from the past
So scams are nothing new

old wine in

new bottle
Corruption and shortage of resources made the
great
poet
Kalidasa
write

Mudraraksham

ABC OF SCAM
In the last 3 to 4 years, our great country India has
seen an enormous increase in the number of scams or
frauds both in public as well as in the private sector.
Frauds/Scams in India since Independence
50
45
40
35
30
25
20
15
10
5
0

2015

2014

2013

2012

2011

2010

2009

2008

1948 - 2007

LOOKING BACK
Bhopal Gas Tragedy - Was this catastrophe less
lethal than Hiroshima and Nagasaki Disasters?
We count such blot on civilization as SERIOUS
CONSPIRACY AGIANST MANKIND (SCAM)

MERA BHARAT MAHAN! My India is great.

Even to let the murderers of Bhopal Gas Tragedy leave this
country
Was it the greatness of this land or the greatness of this
administration in lieu of some hush-hush kickbacks?
Once again Union Carbide was in the limelight. This time
they are the official sponsor of OLYMPIC 2012

can we question the moral and ethical

standards of Olympic Committee

SCAM DHIN-DHINA-DHIN
Harshad Mehtas or Ketan Parekhs - still there
Who can forget how Maruti Udyog Ltd.s equity share got
blocked into some hands while going through the IPO
Centurion Bank of Punjab got involved in Reliance
Power IPO and incurred a huge loss
G for genius stands for the catch line of Parle-G
Atleast Aamir Khan teaches us so. Perfectionist!
There are so many gradations in G; 1-G, 2-G, 3-G, chacha-G,
mata-G I often fancy G should stand for Gurughantal
(the black sheep)!
G proved itself to be the eye of a cyclone that hit Indian
economic coasts and took a toll of more than Rs 1.76 lakh
crores
Only one thing can integrate the entire nation; culture be it
music or dance of scams round the year!

RAJU BAN GAYA

January
2009, CNBC TV 18 host,
GENTLEMEN

On 7th
Udayan
Mukherjee put on a grave face - his facial expression
reminded us black thunder which was supposed to be
one of the reason of the ruin of Harappan civilization
Addressing his co-host he tried a baritone voice to read
out the script, the then Chairman of Satyam Computers,
B. Ramalinga Raju had composed

Confession! Honest Confession of a great cheat

So the total scam size was Rs 7,000 crores
What we got to learn that Ramalingam Raju proved his
potency to be a gentlemen

ABOUT

WE TALKED

FACTS OF CONCERN
Overall Risk Ranking
10.269.479.249.23
9.038.878.327.93
7.7 7.546.85
5.54

Fig. 2: Overall Risk Factors which impacts the Economy and Business Environment; Source India Risk
Survey 2015, FICCI
Risk Ranking Public Vs Private Sector
Public Sector

Private Sector
12
12
1111
1010
99
8
7 8 7
6
6
5
5
3 2 4 3 4
2
1
1

Fig. 3: Risk Ranking - Public Vs Private Sector; Source India Risk Survey 2015, FICCI

FACTS OF CONCERN
Perception of most corrupt industries
Percentage
32

17
13

10

9
5

Fig. 4: Perception of most corrupt industries, Source: Bribery Survey Report, KPMG

IMPACT ON ECONOMY AND BUSINESS

ENVIROMENT
Risk Ranking - as perceived from Outside India
Percentage
Natural Hazards
Political & Governance Instability

4.05
5.19

Workplace Violence & Harassment

Fire
Intellectual Property Threat
Accidents
Strikes, Closures & Unrest
Crime

10.94
5.72
7.75
7.39
8.97
9.27

Business Espoinage
Terrorism and Insurgency
Information and Cyber Insecurity
Corruption, Bribery & Corporate Frauds

10.76
9.96
9.69
10.29

Fig. 5: Risk Ranking as Perceived from Outside India; Source India Risk
Survey 2015, FICCI

IMPACT ON ECONOMY AND BUSINESS

ENVIROMENT
Impact of corruption on India's GDP growth
68%

31%

1%

Fig. 6: Impact of corruption on Indias GDP growth; Source Bribery Survey Report, KPMG

IMPACT ON ECONOMY AND BUSINESS

ENVIROMENT
Impact of corruption on capital markets
40%

32%

28%

Fig. 8: Impact of corruption on capital markets; Source Bribery Survey Report, KPMG

Impact of corruption on the Indian economy and corproate organizations

Funneling of scarce public resources to uneconomic projects

Imbalanced economic development

Poor investment environment

Hindrance in the development of fair market structures deterring healthy competition

Diversion and misallocation of resources

Increased costs of goods and services

Weakening work ethics and professionalism

Conversion of public wealth to private and personal property

55%
56%
60%
62%
65%
73%
78%
81%

Fig. 10: Impact of corruption on the economy and business environment; Source Bribery Survey Report, KPMG

PREVENTING AND
DETECTING
FRAUDS
Corporate today require more efficient mechanisms to

mitigate the risk of frauds and also early detection of it.

Internal Audit still continues to be the flag-bearer as a
channel to detect frauds.
Data analytics and whistleblower hotlines are rapidly
gaining grounds as fraud detection.
Most common practice used to detect fraud
4

3.7

3.2

3.1

Whistleblower hotline

Statutory Audit

Internal Audit Review

By Accident

3.5

IT controls

Fig. 11: Most common practice used to detect fraud. Source Deloitte Forensics survey report on whistle blowing
programs (Weighted Average Score)

PREVENTING AND
DETECTING FRAUDS
11 Types of Frauds detected through Forensic Data Analytics

Asset Misappropriation

17%

Bribery and Corruption

Capital Market Frauds like Insider Trading

16%
2%

Counterfeiting

3%

Cyber Crime

7%

eCommerce Fraud

6%

Financial Misstatement
Mergers and Acquisitions Fraud
Money Laundering
Supply Chain Fraud
Theft of Inventory

11%
2%
4%
15%
17%

Fig. 12: Frauds detected through Forensic Data Analytics. Source Deloitte
Forensics Survey 2014

LEGAL
ACTS
TO
CORPORATE FRAUDS

COMBAT

FACTORIES ACT (2013) Attempts to bring in transparency and accountability in the system

THE LOKPAL AND LOKAYUKTAS ACT (2013) - Attempts to provide for the establishment of the
institution of Lokpal to inquire into allegations of corruption against certain public functionaries in India
WHISTLE BLOWERS PROTECTION ACT (2011) - Attempts to provide a mechanism to investigate
alleged corruption and misuse of power by public servants and also protect anyone who exposes alleged
wrong-doing in Government bodies, projects and offices.
COMPANIES ACT (2013) - Attempts to focus comprehensively on fraud risk management and prescribes
stringent punishment upon the violation of its provisions

EXISTING STATUTORY COVERS

( a) Indian Penal Code (1860)
(b) Income Tax Act (1961)
(c) The Prevention of Corruption Act (1988)

(d) The Benami Transactions

(Prohibition) Act (1988)
(e) Prevention of Money
Laundering Act (2002)

FAIRY TALE
Once there was a queen so dedicated!
But for an apology of the letter R, the country has got
every letter from the queen
Queen got married and became the mother of two sons
Two princes - t w o g r e a t V s ! The elder one went
to explore the sky and the younger one went to explore the
earth
The younger one proved to be smarter to grab so many
cars that overnight this V change with the touch of yellow
fever
In their 55 years rule they should be made responsible for
the increase in corruption and bureaucratic red tapism.
All the government services and departments have become
politicized and are being used as a political tool rather than
a state tool.

PRESENT DAY SAGA .

Our honorable PM Narendra Modi wants the
Indian entrepreneurs and industrialists should
increase their risk appetite and also step their
investments
Mr. Modi has to make a realistic assessment of
the risks Indian businesses face while doing or
setting business in India.
Mr. Modi has discussed with the business in
various forums but in all the forums they have
the same complaints of corruption as they did
in the UPAs second stint.
The India Risk Survey 2015 points to us that
thing have gotten a little more serious.

THANK YOU