New Delhi, March 18: Global consultancy major KPMG today termed India as a “fraud haven” with about 60 per cent of the firms surveyed reporting incidences of fraud.

In its report titled “India fraud survey report 2008”, the consultancy firm said India Inc was not prepared to handle the menace.

Over 70 per cent of the companies believe that fraud in India will increase in the next two years.

Among the respondents, around 25 per cent were executive directors, managing directors and chief executive officers, while 30 per cent were chief financial officers.

Over 75 per cent of the respondents said undetected fraud was their “highest concern”, followed by inadequacies of anti-fraud measures and unethical behaviour of employees.

KPMG said the dual impact of the two concerns — unethical behaviour of employees and inadequacies of anti-fraud measures — led to an environment where both inclination and opportunity coexist.

“This could mean that organisations in India that remain passive in their approach to deal with fraud may be a perfect breeding ground,” the study said.

Over 80 per cent of the respondents recognised fraud as a problem. The respondents believed that companies paid bribes or made facilitation payments to do business in India. However, 60 per cent did not have adequate knowledge of anti-corruption laws.

Though it is difficult to calculate the actual impact of fraud on a business as not all the cases are discovered, at least five per cent of the companies reported losses of more than Rs 10 crore, while 11 per cent put the losses in the range of Rs 1-10 crore.

Of those surveyed, 31 per cent suffered losses of Rs 10 lakh to Rs 1 crore because of fraud. However, it was less than Rs 10 lakh for about 53 per cent.

The incidence of fraud has risen 54 per cent since the previous survey in 2006. About 60 per cent confirmed the occurrence of fraud at their companies against 39 per cent two years back.

The survey revealed that the financial services sector was the most susceptible to frauds, while real estate and infrastructure had surpassed IT and ITeS as the second-most risky business.

The report said the threat of fraud came largely from within the organisation.

The majority of those surveyed felt that “employees pose the maximum threat to an organisation and the senior management is more likely to commit fraud compared to other employees”.

Inherent responsibilities and trust associated with senior positions, ability to override internal controls, internal knowledge and access to confidential information increase the risks, it said. After employees, the maximum threat is perceived from suppliers and service providers, said KPMG.

“With the increase in the number of business transactions combined with the lack of effective monitoring, frauds are a real time threat for most corporate houses in India. It comes as a surprise that even larger firms operating in India do not have adequate risk management strategies,” said Deepankar Sanwalka, head of forensic services, KPMG India.