Over 62 per cent of independent directors indicated that they believe fraud will increase over the next two years
About 63 per cent of the independent directors are ready to be a part of the board even if they have previously experienced or reported fraud.
Largescale remote working arrangements and cash flow crunch, leading to business operations taking a priority over compliance during the pandemic, could lead to a rise in frauds, a survey on how independent directors perceive corporate fraud has found.
The survey conducted by Deloitte and institute of directors found that over 62 per cent of independent directors indicated that they believe fraud will increase over the next two years. A majority of independent directors indicated a lack of complete understanding of the existing fraud risk management framework and that they did not have comfort in the robustness of the currently implemented fraud risk management framework (FRM). Sixty percent independent directors surveyed said they did not have an overall understanding of the existing FRM framework.
About 63 per cent of the independent directors are ready to be a part of the board even if they have previously experienced or reported fraud, about 75 per cent of them responded that they could play a significant role in preventing, detecting and responding to fraud.
The report said historically, data shows that business disruptions have been followed by a rise in discovery of fraudulent practices and pandemic has led to numerous pressures on businesses. “The current business environment is turning out to be no different as companies are operating on unstable ground with changing business modalities, new way of working and relaxed controls framework, they will also deal with new and increased vulnerabilities to fraud and misconduct,” it said.
“Given the changing regulations and evolving public perception, there is an increased responsibility on independent directors to drive the fraud risk management agenda. In this context, independent directors need to be better equipped to discharge their duties through specific training on emerging fraud risk landscape and adoption of best practices on fraud prevention, response and remediation,” said Nikhil Bedi, partner and forensic leader, Deloitte India.
The survey found that sudden shift to remote offices meant multi-fold increase in electronic communications — both written and verbal — wherein employees are working in a less-secure environment. New workflows to accommodate processes, coupled with oversight, may have created opportunities for internal or external parties to commit fraud, the report said.
Companies Act, 2013, and the revised corporate governance norms of the Securities Exchange Board of India (Sebi) for listed companies, have placed significant accountability for fraud risk management on the board of directors and audit committee, involving independent directors. While responsibilities and accountability of independent directors have increased manifold, the survey highlights that over 53 per cent independent directors believe there is a need to get better equipped to fulfil such fiduciary responsibilities.
The survey found that over 62 per cent indicated having been a part of just less than three discussions in the last 18 months on FRM practices.