Predicting the Unpredictable

According to PwC's fifth biennial Global Economic Crime Survey 2009, over 25% of Indian manufacturing sector respondents have been victims of economic crime in the past year as against 21% of the global manufacturing sector respondents. Though the manufacturing sector in India has registered stellar growth figures, it is faced with the daunting task of combating fraud and misconduct, which poses serious reputational, operational, legal and strategic risks to companies.

In this context, PwC’s Industry Experts and Forensic Services professionals have co-authored the report titled, “Predicting the Unpredictable - A guide to mitigating fraud and misconduct in the Manufacturing Sector." The report provides valuable insights on the importance of mitigating fraud and misconduct among the manufacturing sector executives. It also seeks to stimulate discussion and aid in developing effective ways and means to combat economic crime.

Over 3,000 senior representatives globally and 145 in India completed our web based survey. The respondents shared their views on fraud threats that emerge during an economic downturn. The survey provides unparalleled insight into the awareness, impact and perceptions of economic crime on businesses in India and around the world.

Key findings of the survey are enumerated below:

  • Bribery and corruption was by far the most prevalent form of economic crime in the Indian manufacturing industry, with 50% of manufacturing sector respondents reporting fraud incidences followed by 33% respondents reporting one or more categories of accounting fraud

  • Employees comprised a staggering 83% of offenders of incidents of economic crime in the manufacturing sector in India. Of these, a substantial 40% each came from the top and middle management ranks

  • Fifty percent of the manufacturing sector respondents from India indicated that fraud detection occurred through internal tip-off

The inherent nature of the manufacturing sector makes it susceptible to frauds and risks. Frauds may take various forms. Some of the common frauds include bribery and corruption, asset misappropriation, accounting frauds, disclosure frauds, fraud by senior management, aiding and abetting, bid rigging to name a few.

PwC’s proprietary ‘Antifraud Framework’ provides structure to the development and implementation of a thorough antifraud programme. Manufacturing companies need to thoughtfully assess their fraud risks and make a focused effort to manage them effectively through an exhaustive fraud risk management programme. A strong control environment plays a crucial role in reducing the risk of fraud and misconduct within a company.