In a survey, 63% of Independent Directors (IDs) said that corporate fraud cases will increase in the next two years due to COVID-19 related pressures.
This is because COVID-19 has significantly disrupted the business environment, leading to changes in business models, cash flow constraints and remote work environments, which have increased fraud-related vulnerabilities to organizations and individuals, The survey by Deloitte Touche Tohmatsu India LLP (DTTILLP), in association with the Institute of Directors (IOD), revealed.
According to the findings, cybercrime (23.9%), financial statement fraud (20.96%) including inaccurate business valuations and leakage of sensitive information (12.87%) are the most likely fraud schemes to be experienced in the near future.
Nikhil Bedi, Partner and Leader, Forensics, Financial Advisory, DTTILP, said, “Our survey results show that independent directors are willing to be part of a board that has experienced fraud in the past.
“However, there is a need to invest time and efforts for ID to play a meaningful role in ensuring strong corporate governance by enhancing a deeper understanding of fraud risks,” he added.
“In addition, the results also highlight the need for organizations to critically evaluate the effectiveness of existing fraud risk management frameworks in light of the rapidly changing business environment”, he said.
Rohit Goel, Partner, Forensics, Financial Advisory, DTTILLP said, “While there are many priorities for those charged with corporate governance, given the current economic environment, it is likely that some organizations may choose to prioritize sustainability of operations over other matters. Might try to focus.”
“In such circumstances, the ID needs to act with the highest standards of vigilance and discretion,” he said.
According to the survey results, about 75% of IDs indicated that they can play a vital role in not only fraud prevention and fraud reporting, but also help the organization respond to fraud cases.
60% of IDs indicated that they did not have an overall understanding of the existing fraud risk management framework (both in design and practice).
In addition, around 65% of IDs felt that the existing fraud risk management framework implemented by organizations was insufficient to address fraud risks.
More than 62% indicated being part of less than three discussions on FRM practices in the past 18 months – reflecting the lack of periodic review of the FRM framework by the Board to assess its effectiveness.
About 20% of IDs felt that lack of awareness among employees to prevent fraud, malpractice and non-compliance would contribute to an increase in fraud in the coming years.