Fraud Watch

Lack of control of fraud is a cause of concern and a serious one at that for most corporates in India. A KPMG survey in October 2007 found that over 60% of the corporates interviewed accepted that their companies either lacked or did not have an internal fraud risk control mechanism. The hit is estimated to be to the tune of Rs 100 million plus for at least 10 giants in the country. Besides this, a lack of knowledge about the anti-fraud laws in the country and inability to detect fraud seem to be the priority concerns for these companies. In India, the lack of a centralized database for background check information and inexperienced professional services firms in this area makes it difficult and expensive for most corporates to have a thorough background check done for new hires.

Companies also accept that suppliers and e-fraud pose a huge threat to the bottom line of the company. Professional experts are hard to find in India and most corporates in India who work on cost arbitrage do not consider such services as a viable option.

New Face of Risk Management

Every displacement at large has a negative connotation to it due to its nature of ruling out the obvious. Similar is the story of the recent economic turmoil. But it has a brighter side to it. Of course, we can cry over spilled milk and point out a 1000 things that we did wrong but the important part is finding the things that are right and need to be done. Risk management traditionally has focused on Risk Transfer which worked well during the early 1999 to late 2003 period. But with increased exposure to derivatives and other exotic financial instruments, the world has now come to realize the significance of other key areas Risk Management can help in. Risk Assumption and Risk Elimination are the areas of focus for the Risk Management industry as a whole. This comes as a result of a heightened need to safeguard business interest so that core activities can be conducted without the threat of value erosion. Businesses had been so focused on “Know Your Customer” post September 11 that the “Know Your Business” part was neglected.
With the derivatives exposure globally being at least 10 times the entire recorded tangible investments, the importance of Risk Management services globally has taken centre stage. Risk management against terror threat, intentional risk, exposure risk and cyber threat are the prime areas of focus today.

Risk Management: The Need of the Hour

A survey by KPMG on Consumer Market Companies investing in India in Fall 2006 stated that the #1 reason for these companies to invest in emerging markets such as India and China was Revenue Growth. With the current scenario, companies are expected to float very bad numbers for the coming quarter and most of them are expected to withdraw guidance.

But the companies that are banking on this chaos are Risk Management firms. I am not talking about Investment Banks who are into risk management but companies that specialize in risk management. Their business is said to have grown by 3% in less than 2 months and is expected to rise further. The growth is not just in terms of the number of clients but the extent of service depth for existing clients as well. Clients are demanding more extensive risk mitigation mechanism and customized software. Most of these softwares run into millions if not more. So practically speaking, the liquidity seems affected because it is being squeezed to certain specific segments.