Ambitious Firms Must Have Systems To Check Malfeasance: PwC Official

If Indian companies are to partner with the best in the world, and aspire to become true Indian multinationals (MNCs), they need to have in place systems to detect and report economic crimes. Senior management too need to come clean and encourage whistle-blowing.

These sentiments have been expressed by PricewaterCoopers (PwC) India partner (corporate finance and recovery) Ashwani Puri on the occasion of the release of PwC’s economic crime survey for the country as a part of the global one for 2003. Indian companies have been included in the annual survey for the first time.

The survey has shown that while 53 per cent of domestic firms perceive corruption and bribery as the most prevalent economic crime, only 11 per cent reported suffering from the same. Financial misrepresentation, asset misappropriation and product piracy are the other types of crimes perceived as taking place.

While the survey could not quantify the losses occurring due to such frauds, staff morale, business relationships, reputation and brand image have been seen as the resulting major damages. While auditors detect about 40 per cent of all frauds, most others are unveiled by tip-offs or by accident. 85 per cent of respondents report having taken measures to ensure they are less exposed to economic crime.

Mr Puri told FE, “The significant conclusions one can draw from this survey are unwillingness of management to admit being victims of such crime, poor detection systems leading to lower reporting and acceptance of certain classes of offences as economic crimes.”

He referred to these certain classes as those where the senior management and promoters were themselves involved but are seen as inevitable and acceptable in business. “The other mistake managements make is defining thresholds of crimes, and treating these differently. There has to be uniformity,” he said. “The level of reporting is seen to be higher in larger companies. While delegation is necessary to manage larger companies, trusting individuals has to be backed by robust systems to maximise fraud detection,” added Mr Puri.

“While companies may be introducing systems to encourage and protect whistleblowers, it is easier said than done. Managers have to ensure they walk the talk to ensure action is taken. Managements have to go beyond stopping at codes at ethics and have clear policies and systems in place to show what they mean and invest in training senior management to detect fraud,” he said.

“While intangibles like code of ethics are increasingly being introduced by companies, it is mostly those who have been victims of economic crimes who are taking serious steps to avoid future occurrences. The Asia region has culturally been seen as corrupt, but global best practices, government legislation and stakeholder pressure is forcing more and more senior management to clean up their own act,” said Mr Puri.

“Indian managements and promoters too need to draw a line somewhere, and be seen to be clean, to ensure they partner the best and ensure high growth,” he concluded.

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