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| In red, TI Index |
Fraudulent practices across business activities has risen over the past two-years in Sri Lanka, with billions of rupees lost each year to economic crime, a new study showed. Some 83 percent of those surveyed by international accounting firm, KPMG Sri Lanka, felt incidences of fraud has increased over the last two-years.
While the survey, which was done between 2011/12, was unable to quantify the total economic loss, KPMG said the highest fraud related loss in excess of 3.0 billion rupees was discovered in the industrial sector. The lowest loss of 2.5 billion rupees came from the agriculture sector.
“Fraud is defined as a financial loss as a result of a deceit,” explained Deepankar Sanwalka, Partner and Head Risk Consultancy at KPMG India.
Most frauds in Sri Lanka were related to financial services, intellectual property, bribery and corruption and diversion of funds and goods.
Sanwalka said the fraudulent patterns were similar to India, but going forward technology related crimes will emerge the largest segment in Sri Lanka.
“Fraud is all about making money. Certain types of technology crimes are all related to intellectual property. If intellectual property is valuable, fraud follows where the money is,” said Sanwalka.
Those responded said top and mid-management were aware that most frauds happen within the firm.
“The survey findings, came as a surprise to me, being a senior in the trade,” KPMG Sri Lanka’s Managing Partner Reyaz Mihular told businessmen during the report’s launch.
“Awareness of fraud is always the first step towards managing the issue. It’s the first step towards beginning a new era of responsibility in Sri Lankan society,” said Mihular, a 25-year-old industry veteran.
The survey, which was the first in Sri Lanka, was based on a questionnaire sent out to 400 public and private sector organisations. KPMG targeted organisations whose annual turnover ranged between 50 million to 10 billion rupees and had staff strength between 100-5,000.
The survey attracted 90 respondents, representing 102 industry segments. Their responses were classified into agriculture, consumer markets, financial services, NGO, information, communication and entertainment, industrial and other areas.
Some 70 percent of respondents admitted to having encountered fraud in their organisations, said Jagath Perera, who heads KPMG Sri Lanka’s Risk Consultancy unit.
Firms reported fraudulent activities through:
– whistle blowing hotlines (nine-percent),
– internal and statutory audits (36 percent),
– anonymous callers/letters (17 percent),
– accidental(15 percent),
– IT controls (six percent),
– data analytics (17 percent).
Some 44 percent of economic crimes were reported from the supply chain areas, 35 percent came from bribery and kickbacks, while 27 percent felt financial statements were altered to inflate performance.
The KPMG survey showed that companies were reluctant to disclose a fraudulent activity as it erodes stakeholder confidence. Firms also face a dilemma of whether to seek legal redress or limit the potential fallout through a public notice.
Those caught in the act, are sometimes allowed to repay the loss and let-off lightly through a voluntary resignation.
But Perera felt a zero-tolerance policy is the best option, if a company or industry is keen to adopt transparency and good governance.
While zero-tolerance was practiced when it came to middle or lower management, it was not so when the perpetrators were in senior management.
“If you don’t make an example of people, then people don’t know the seriousness of creating the fraud. Make sure the grapevine knows why people were allowed to go. Idea is to have zero tolerance of fraud,” Perera said.
By Mel Gunasekera
LBO