Evolving fraud trends in the Automotive and Industrial Manufacturing sector in India

India's manufacturing sector, including Automotive and Industrial manufacturing (Auto and IM), has undergone significant transformation driven by technological advancements and changing consumer preferences. The Indian manufacturing sector generates around 17 percent of the country’s GDP and is projected to be one of the fastest-growing sectors. India has the capacity to export goods worth USD1 trillion by 2030 and is on the road to becoming a major global manufacturing hub.

The Indian manufacturing sector has grown to the extent of 12.1 per cent during the last fiscal year, Wherein the automotive sector sales have grown to the extent of 12.5 per cent in the last fiscal year. However, this growth and transformation have also evolved ways in which frauds are perpetrated by fraudsters. This document provides a broad view of these trends and suggests actionable measures to mitigate fraud risks.

KPMG in India conducted a comprehensive survey involving subject experts and received insights from various organisations within Auto IM. The survey results include 70 per cent representation from internal audits, 10 per cent from compliance, 10 per cent from the ethics committee and general counsel, and 10 per cent from finance and other functional leaders. The report also throws light on various trends and challenges in fraud detection.

About 80 per cent of fraud detections occur through whistleblowing hotlines and direct complaints to senior management, emphasising the importance of maintaining an effective whistleblower mechanism and effective channels of communication between employees and senior management.

Whistleblowing: About 80 per cent of fraud detections occur through whistleblowing hotlines and direct complaints to senior management, emphasising the importance of maintaining an effective whistleblower mechanism and effective channels of communication between employees and senior management.

Proactive fraud risk assessments: Regular fraud risk assessments have proven effective in identifying red flags, especially in procurement processes.

Early warning mechanism: The use of automated solutions is crucial for the early detection of potential frauds, analysing large volumes of data to identify patterns indicative of fraudulent behaviour.

• Corrupt employees, preferred vendors, and dealers engaging in fraudulent and corrupt practices are increasingly using messaging applications for communication, making it difficult to track fraudulent activities through traditional e-mail, process, and document reviews. The prevalence of accepting bribes and/or kickbacks in cash to avoid a money trail has also seen an uptick.
• Involvement of related entities: The active involvement of related entities, including family members, through using their bank accounts, floating shell companies, registering companies in their name for transaction purposes, and procuring assets in their name has also been noted.
• Fraudsters are increasingly accepting bribes and/or kickbacks in cash or kind, gifts, entertainment, leisure, or personal travel to avoid a money trail.
• Fraudsters have heightened awareness of fraud detection techniques, including review of electronic data and interview techniques; hence, they use highly improvised techniques for committing fraud. Their responses during post-detection interactions and/or interviews with the management are also well thought out.
• Circumstantial evidence: With the shift in fraud communication methods, reliance on circumstantial evidence to substantiate fraud claims has increased.

Given the various challenges, how can organisations effectively prevent and facilitate early detection of fraud in the automotive and industrial manufacturing sectors? Download the full report to find out!