Business Times

Fraud on the rise - KPMG study shows

Ethics hotline sees two firms signing up to combat swindlers and con artists
By Duruthu Edirimuni Chandrasekera

The 'ethics hotline' launched by KPMG Ford Rhodes Thornton and Co. last year has seen two firms subscribing and more than six companies interested in the process, officials said.

Reyaz Mihular, Partner - Head of Advisory Services KPMG, told the Business Times on the sidelines of the audit firm's launch of 'Awakening' - their fraud survey for Sri Lanka for 2011/12 that Amana Bank has signed up early on with this hotline and another firm has subscribed to it. "As much as six firms have already shown interest and they are studying the process of setting up a hotline," he said.

Explaining the benefits of this ethics hotline, Mr. Mihular said that it will give confidence to the whistle blower as this is handled by an independent party which will ensure anonymity through confidentiality of the whole process. He also said that there will be no cost for the whistle blower as the reporting channels are free of charge (Toll Free Number).

"Positive whistle blowing culture is a critical element in the success of any fraud risk management system. One major obstacle in the fight against fraud, corruption and unethical behaviour is the reluctance of individuals to 'blow the whistle' on such activities due to the fear of retribution, or victimization by employers or colleagues'," he pointed out.

Mr. Mihular added that this is the first of its kind in Sri Lanka and they are happy with the reception from the corporate world. Explaining the Fraud Survey Analysis 2011/12, he said that they relied upon data that was derived through an online questionnaire which was sent to a sample of respondents comprising directors and senior management of corporate institutions in Sri Lanka. Completed questionnaires were collated and analysed using a number of statistical measures.

The analysis noted that awareness of the incidence and existence of fraud in Sri Lanka is now on the increase, as is an awareness of its consequences to business, the economy and public well-being, with politicians extolling the virtues of good governance and accountability. It said that the private sector is also tightening controls to reduce fraud risk exposure.

"Our analysis revealed a surprising anomaly, with respondents being aware of the existence of fraud in industries other than their own. This has been understood by behavioural psychologists to be the first feeling of 'No, it can't happen to us'," Mr. Mihular said. Out of 90 respondents, representing 102 industry segments, 70% admitted to having encountered fraud in their organisations. The study said that 89% of the respondents representing public sector institutions encountered fraud, while respondents from the private sector reported an incidence of 64%.

It also revealed that in the instances of bribery and corruption, including kickbacks, 27% of the perpetrators was from top management, while 46% were from the middle and lower levels of management, and the remaining 27% of the perpetrators were customers, vendors and business associates of the organisation. Fraud occurring due to diversion of funds and goods, through false claims and pilferage were committed by different levels of management and outsiders.

When asked about the corporate governance structures in Sri Lanka, Mr. Mihular said that the country has made significant progress in this area. "As in any fast growing market, this is an area that we can consider 'as work in progress," he added.

Mr. Mihular said that white collar crime in the country cannot be gauged. He said that there isn't enough information in the public domain on this aspect. "It may be because several companies sometimes do not follow through on such crime with the enforcement agencies for reasons best known to them," he added.

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