Raising the compliance bar will be instrumental to battle fraud and corruption in 2017: EY

Mumbai, 15 December, 2016

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Government initiatives, strong domestic demand and rapid inflow of foreign direct investment (FDI) led India being on an upward growth trajectory this year. The recent demonetization drive, introduction of new regulations such as the Bankruptcy code and push toward a digital economy have had a profound impact on businesses and consumers alike. While the short term situation could be challenging, these moves have the ability to quash fraud and corruption, raise compliance standards, focus on individual accountability and increase investor confidence in the long run. On this note, EY Forensic & Intergrity Services has highlighted key trends in its Forensic Outlook 2017 which will enable companies to enhance compliance, stimulate business growth and redefine the Indian business diaspora.

Arpinder Singh, Partner and Head - India and Emerging Markets, Forensic & Intergrity Services, EY said, “The growth, profitability and sustainability of businesses depends on many factors, and compliance is a critical component in an organization’s success matrix. With cases of fraud and corruption on the rise, companies need to enhance the state of compliance through robust internal controls, due diligence processes and integrity trainings for internal and external stakeholders. The use of technology will be a key factor to strengthen anti-fraud and anti-corruption frameworks and mitigate fraud, waste and abuse.”

Continued crackdown on bribery and corruption

Globally, there has been an upswing in regulations as well as enforcement actions by Governments. In India, the crackdown on bribery and corruption has been through improved reforms such as the recommendations suggested by the Rajya Sabha Committee for the Prevention of Corruption Amendment Bill 2013, demonetization drive to uncover unaccounted black money, upcoming Goods and Services Tax (GST), Income Disclosure Scheme and many others. In 2017, the battle against corruption is expected to accelerate as India strives to keep pace with global standards. Procedures to simplify the ease of doing business will see an uptick, corporates will turn to adopt global leading practices such as ISO 37001 standard which is the first international standard on anti-bribery management systems. Compliance programs will be more visible, technologically-led and enforcement actions by local authorities to penalise perpetrators will grow stronger.

Curbing financial crime in the banking and financial services sector

The banking and financial services sector has been struggling with the non-performing assets (NPA) crisis, and saw more challenges in the form of unaccounted black money, counterfeit currency, ATM fraud and money laundering activities. Building robust systems, conducting proactive checks and adopting digitized payment methods turned out to be the need of the hour. In 2017, it will be imperative to deploy preventive and detective measures to address potential financial crime risks, at the systemic as well as organization levels. Priority areas include effective management of red flag NPA accounts, identification of early warning signals, stronger controls to mitigate data leakage and mis-utilization of propriety data sets. There will also be a focus on newer solutions such as robotics or automation within lesser explored areas such as Know Your Customer (KYC) during customer on-boarding and transaction monitoring to enhance efficiency. Technology upgradation to meet regulatory requirements as well as reducing overall compliance costs would be vital.

Leveraging technology for compliance

The widespread use and dependence on technology is transforming the compliance landscape. As large volumes of information continue to be exchanged over networks, the risk quotient with respect to data leakage, data theft and cyber-attacks has augmented. The adoption of sophisticated technologies is crucial as India moves toward a digitally-driven economy. In 2017, the use of technology to fuel compliance and combat risks will be instrumental. Forensic Data Analytics will play a critical role to identify early warning signals, spot unusual and potentially suspicious patterns in transactions. The C-suite will turn to deploying dashboards to present results from analytics as it is a much more interactive and dynamic alternative. Companies could also look to integrate high-end robotics with artificial system intelligence to automatically detect signatures or patterns associated with execution of malwares or other malicious codes.

Compliance with food safety standards

Global regulators have taken various steps in updating laws and guidelines for the food industry. In India, the Food Safety & Standards Act 2006 regulates the sector, focusing on increasing consumer awareness and enforcing regulatory standards. With the quality of food products being deemed questionable in recent times, there have been a reasonable number of concerns and the regulator has issued a number of advisories as well as imposed fines on large brands. In 2017, food business operators will have to conduct food safety audits and periodic testing during the entire product life cycle to enable compliance with quality and ensure seamless functioning of the business.

Re-engineering the CFO

The role of the modern day Chief Financial Officer (CFO) is unique, and goes beyond financial leadership to drive governance and maintain an ethical tone at the top. Today, CFOs are expected to spearhead investment decisions, stay updated on regulations, be technologically inclined and break stereotypes. But changing regulations can lead to compliance inadvertently taking a back seat. This is because maximum energy and resources are arranged to handle the business due to a dynamic external environment. In 2017, CFOs will have to prepare for the anticipated reforms such as the GST implementation, updates in the demonetization drive and others in the pipeline; but at the same time, keeping compliance at the centre of all activities and decisions. As the cost of fraud and corruption continues to escalate, non-compliance could potentially result in companies shelling out millions in penalties and damaging reputation which could have an adverse impact on the bottom-line.

Notes to editors

About EY

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This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.

About EY’s Forensic & Integrity Services

Dealing with complex issues of fraud, regulatory compliance and business disputes can detract from efforts to succeed. Better management of fraud risk and compliance exposure is a critical business priority — no matter the size or industry sector. With approximately 4,500 forensic professionals around the world, we will assemble the right multidisciplinary and culturally aligned team to work with you and your legal advisors. We work to give you the benefit of our broad sector experience, our deep subject-matter knowledge and the latest insights from our work worldwide.