The current business environment induced by the pandemic can spur fraud over the next two years, says a survey. In fact, a significant percentage of independent directors believe that too.
Deloitte Touche Tohmatsu India LLP (DTTILLP), in association with the Institute of Directors (IOD), released a survey ''Corporate fraud and misconduct: Role of Independent Directors'', the findings of which reflect that around 63 per cent Independent Directors (IDs) believe fraud cases will rise in the next two years.
According to the survey, large-scale remote working and cash flow crunch were identified as the key factors for the expected rise in frauds. Cybercrimes and financial statement frauds are likely to dominate fraud schemes, it added.
"Although there are multiple priorities for those charged with corporate governance, given the current economic climate, it is likely that some organisations may seek to focus on prioritising sustainability of operations over other matters. Under such circumstances, IDs need to act with the highest standards of vigilance and prudence," said Rohit Goel, Partner, Forensic, Financial Advisory, DTTILLP.
Around 75 per cent IDs believe that they could play a significant role in fraud prevention and detection.
Moreover, around 57 per cent IDs indicated that their board had established an effective Fraud Risk Management (FRM) framework, the survey said, adding that training on FRM is the need of the hour.
"... the results also highlight the need for organisations to critically evaluate the effectiveness of the existing fraud risk management framework in light of a rapidly changing business environment," said Nikhil Bedi, Partner and Leader, Forensic, Financial Advisory, DTTILLP.
While the responsibilities and accountability of IDs have increased manifold in recent years, the survey noted that around 75 per cent IDs believe that they could play a significant role in fraud prevention and detection.
"Over the years, the role of IDs has been evolving and enhancing, and regulators are placing increasing dependence on the vital role of IDs in good governance. IDs are chairing or are members in a majority of board committees, including the Internal Audit Committee.
"In the survey, IDs have shown keenness to take on a greater role in being an effective deterrent to fraud, mismanagement, and lapses in corporate governance. Of course, we will need to suitably prepare them for this additional role”, said Lt. Gen. J. S. Ahluwalia, PVSM (Retd.) – President, IOD.
This survey report has been developed based on the responses received to a questionnaire that IOD circulated to IDs serving on public company boards across all major sectors in July and August 2021. The survey received around 110 ID responses.