Retail financial sector vulnerable to fraud: KPMG

The retail financial sector, mainly banking, insurance, mutual funds and asset management companies, are most vulnerable to fraud risk and only 24 per cent of the companies in the country are prepared to tackle with it, said a study by KPMG on 'India Fraud Survey Report 2006'.

Customers pose risk to the financial sector while, employees pose biggest threat to outsourced operations, the report said. The financial sector topped the risk factor with 23 per cent respondents, considering it as the most vulnerable to frauds. Next in the list is NBFCs or Investments banks with 17 per cent followed by the information, communication and entertainment sectors.

The report found different perpetrators depending on the sector. Eighteen per cent of the respondents said employees pose maximum perceived threat in the financial sector against 36 per cent in BPO.

About 24 per cent respondents said suppliers and contractors pose maximum threat while, 22 per cent said media domain were exposed to fraud from employees and suppliers.

The survey observed a growing concern over fraud in corporate India, evident from the impact on profitability. The rupees loss have been most in the case of expense accounts whereas, incorrect information and personal use of official assets were other significant reasons.

The survey showed that majority of the frauds were identified either through the organisation's own internal audit or notified by a third party, both getting 27 per cent.

The KPMG report highlighted the respondents' change in outlook towards the risk of fraud owing to the Securities and Exchange Board of India (SEBI) guidelines to file quarterly compliance reports with statutory auditors certifying this compliance. About 55 percent agreed having undertaken measures to reassess the effectiveness of internal controls and mitigate risks while, 63 percent felt that due training and awareness programmes are conducted once a year.

The survey findings are conclusive that corporates are getting proactive to understand and execute measures to safeguard against the perils of fraud and misconduct.

The survey include organisations from annual revenues ranging less than Rs 50 crore turnover to over Rs 1,000 crore. The respondents are top management including CFOs, heads of legal, internal audit, compliance, security ad vigilance, chairmans, MDs, executive directors and GMs.