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While India has demonstrated remarkable growth, positioning it as the fastest-growing major economy globally, the susceptibility to fraudulent activities has heightened with the rapid expansion of businesses. The landscape of fraud risks in India has been significantly altered by the pandemic and subsequent recovery period, especially considering digital transformation.
Recent regulatory changes, such as the enforcement of the Digital Personal Data Protection Act, SEBI guidelines on forensic audits, and NFRA’s circular on fraud reporting, have underscored the critical need for robust fraud risk frameworks and increased vigilance by corporates.
To understand the complexities of fraud risks within the Indian corporate ecosystem, Grant Thornton Bharat conducted its inaugural Financial and Cyber Fraud Survey with over 250+ CXOs from diverse industries, including business strategy, finance, information technology, risk and compliance, and legal. Our report brings you critical insights into the incidence of fraud during and after the pandemic, its financial ramifications, contributing factors, and response strategies.
The Financial and Cyber Fraud Survey Report 2024 reveals a significant surge in fraud incidents impacting several industries. Every second organisation surveyed encountered one or more fraud incidents in recent times, with the top three areas of fraud identified as cyber incidents, diversion of assets and regulatory.
Out of the above, three out of four respondents observed a noticeable increase in fraud incidents post-pandemic. Factors contributing to this increase include the shift to remote work, inadequate internal controls to align with organisational changes, and challenges related to technology.
Moreover, the survey highlights an alarmingly low adoption rate (around 20%) of advanced predictive detection capabilities such as artificial intelligence and machine learning within organisations. This vulnerability is not limited to specific industries; it is a shared concern across various industries, notably Technology, Media & Telecommunication, Financial Services, Consumer & Retail and Manufacturing.
Fraud distribution shows that cyber fraud and related incidents now constitute a substantial 64% across industries following transformative changes in business operations post-pandemic.
While the shift to remote work and technology challenges contribute significantly to increased fraud, inadequate internal controls pose a challenge nationwide. Limited investments in governance protocols are identified as a key factor contributing to the rise in cyber fraud incidents. Close to one-third of respondents still face asset misappropriation and bribery & corruption-related incidents. Weak internal controls, monitoring mechanisms, complex regulatory environments, and lack of whistleblower protection contribute to delayed detection of such incidents. India's slip in the Global Corruption Perception Index 2023 indicated the necessity for robust governance controls over bribery and corruption.
As companies tackle traditional fraud, they face increasing threats from modern digital schemes, particularly Business Email Compromise (BEC). Our survey highlights BEC, social engineering and identity theft as prominent fraud methods.
More than one-third of the respondents, moonlighting appears as a key emerging fraud trend. Moonlighting is not a new practice, but the technology industry continues to see an upsurge due to recent changes in working models, such as hybrid working or work from anywhere.
Coordinated effort between external and internal parties, such as vendors, customers, or other entities interacting with the organisation, represents a complex threat to organisations. Frauds involving collusion may include sharing insider information, bypassing security measures, and manipulating organisational processes for mutual financial gain or coercion.
As per our survey, there is a notable uptick in the adoption of anti-fraud technology and cybersecurity, especially among larger organisations.
However, over one-third of respondent organisations remain unsure about the effectiveness of their anti-fraud and cybersecurity programs in reducing incidents, suggesting a need for a more comprehensive approach. This could involve developing and communicating various metrics and indicators to enhance awareness and effectiveness. Key strategies include establishing fraud-focused key performance indicators, implementing robust controls, regularly monitoring fraud trends, and conducting thorough internal and external reviews.
The Technology, Media, and Telecom (TMT) sector and the Financial Services (FS) sector emerge as leading industries consistently prioritising cybersecurity assessments and audits. However, the survey highlights a concerning gap in the adoption of cybersecurity practices among traditional sectors such as manufacturing, real estate, and infrastructure.
The pandemic has led to significant shifts and enhancements in anti-fraud and cybersecurity programs of organisations to enable them to adapt to evolving threats and new modes of operations. Enhancement to governance and compliance framework, training for internal and external stakeholders and continuous control assessment of high-risk areas have been highlighted as the major changes undertaken by the corporates across sectors.
As organisations navigate through changing regulatory and ethical environments, implementing customised solutions aligned with their needs can effectively help them mitigate risks.
Leverage advanced technologies to strengthen governance
Establish internal controls
Create employee awareness and necessary frameworks
Have a diverse board with an audit committee and independent directors to enhance governance, accountability and transparency
This proactive strategy aids in risk mitigation and fosters trust, resilience, and long-term sustainability within the organisation.
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