Procurement frauds and various forms of misconduct are pervasive issues within India’s consumer markets sector, as unveiled in a recent report by KPMG. The report, based on a multitude of forensic investigations, sheds light on crucial themes and areas of fraud risk in this sector.
Procurement frauds were found to be prominent, accounting for 38 percent of the investigations conducted. These frauds encompassed a spectrum of activities, from questionable procurement from favored vendors at prices exceeding market rates to collusion between employees and vendors, resulting in improper payments.
A significant portion of the investigations, around 21 percent, centered on issues within the sales and distribution channel. These ranged from employees moonlighting and falsifying attendance records to give the impression of broader market coverage to unauthorized sales of branded products.
The study revealed that most of these fraudulent activities were orchestrated by mid-level employees, typically between 30 and 45 years old, who exploited weak internal controls. Collusion between employees or third parties played a role in a substantial 78 percent of the cases.
While the primary motivation for fraud was personal financial gain, other factors such as a culture of bypassing processes, negligence, and insufficient anti-fraud controls also contributed to these activities.
E-commerce and cyber-related frauds, accounting for 16 percent of investigations, demonstrated constant evolution. These included sales to fictitious customers to capitalize on promotions or cashback offers, pilfering products, and phishing attacks.
Inventory-related thefts and stock manipulation featured in 12 percent of investigations. These activities involved record tampering, manipulation of CCTV footage to conceal theft, and inflating raw material consumption.
Manpower-related fraud, identified in 10 percent of investigations, included the diversion of employees to competitors and the creation of “ghost employees.”
Furthermore, the report highlighted that 18 percent of investigations unveiled violations of the code of conduct. These violations encompassed sharing confidential information, misusing official assets for personal purposes, and submitting fictitious invoices.
In response to these fraudulent activities, organizations took action by terminating or separating fraudulent employees. In some cases, legal proceedings were initiated against the wrongdoers to recover losses incurred by the organizations.
To proactively combat fraud in the future, organizations focused on conducting awareness and training workshops, strengthening existing processes, and implementing tools to detect early warning signs of fraudulent activities. This comprehensive approach aims to mitigate the risks and challenges prevalent in the consumer markets sector.