KPMG in India Reveals Emerging Fraud Trends and Profiles of Fraudsters in India’s Consumer Markets Sector

The consumer markets sector in India has witnessed a remarkable transformation in recent years, poised to become the world’s third-largest sector by 2027, with consumer spending expected to exceed USD 4 trillion by 2030. However, as this sector flourishes, it also faces evolving fraud threats.

A comprehensive study conducted by KPMG in India reveals key themes and fraud risk areas in the consumer markets sector. This study, based on multiple forensic engagements, involved the investigation of over 200 individuals and provides invaluable insights into the changing landscape of fraud in this sector.

Key Findings:

• Procurement frauds were noted in 38% of investigations. This includes procurement from favored vendors at prices exceeding market rates, collusion between employees and vendors leading to improper payments, and manipulation of vendor data to siphon off funds.
• Approximately 21% of investigations involved issues in the sales and distribution channel. These issues ranged from employees moonlighting, recording fake attendance to demonstrate market coverage/reach to unauthorized sales of branded merchandise.
• E-commerce and cyber-related frauds, noted in 16% of investigations, have been constantly evolving. These frauds involve sales to fictitious customers to get benefits of promotions/cashbacks, pilferage of products, and phishing attacks.
• Inventory-related thefts and stock manipulation were identified in 12% of investigations. This includes modifying records, manipulating CCTV footage to conceal the theft, and inflating raw material consumption.
• Fraud-related to manpower was identified in 10% of the investigations, including diversion of manpower to competitors and creating ghost employees.
• Violations of the code of conduct were noted in 18% of the investigations, encompassing the sharing of confidential information, using official assets for personal purposes, and submitting fictitious invoices.

Mustafa Surka, Partner, Forensic Services, KPMG in India, said, “The rapid growth of India’s consumer markets sector brings both unprecedented opportunities and challenges. Our study highlights the evolving fraud landscape and the need for organizations to proactively adopt tech-driven measures and robust anti-fraud controls. Maintaining an ethical culture within the organization is not only beneficial for the business but also for the society and environment in which they operate.”

Motive Behind Committing Frauds:

The primary motive for fraud was personal financial gain. However, other factors, such as a culture of bypassing processes, negligence, and weak anti-fraud controls, also contributed to fraudulent activities.

Profile of a Fraudster:

Most fraudsters were mid-level employees, between 30 and 45 years old, who exploited weak internal controls. Collusion between employees and/or third parties was involved in 78% of the cases.

Reasons for organisations to initiate investigations:

Majority of the investigations were triggered due to whistleblower complaints by employees/third parties and anonymous complaints. Management suspicion or internal audits also emerged as other key reasons to initiate investigations.

Actions taken by organisations:

Fraudulent employees were either terminated or separated from the organization and in some investigations legal proceedings were initiated against the fraudsters for losses incurred by the organisations. To combat itself from frauds in the future, organisations conducted awareness/trainings workshops, strengthened existing processes and implemented tools to identify early warning signals of frauds.

KPMG in India’s Recommendations:

To combat these rapidly evolving threats, organizations in the consumer markets sector are urged to adopt tech-driven measures such as Artificial Intelligence (AI) and Machine Learning (ML) based analytic tools and transaction monitoring mechanisms. It is imperative for organizations to implement robust anti-fraud controls and create adequate awareness among employees to maintain an ethical culture within the organization. This approach benefits not only the organizations themselves but also the society and environment in which they operate.