IT Fraud and Consumerism

Consumerism and Frauds in the Offshore IT field

Introduction

During the initial years of Westernization of Indians, many intellectuals saw the world as an undivided humanity that knows no barrier or religion, race, class, and nationality (Datta, 2003). Enduring many invasions through ages, the Indian had a broad and inclusive concept of world that emphasized amongst so many religions what we had was one among many religion. Rabindranath Tagore, the Nobel Laureate in Literature from Bengal, captured this essential oneness of mankind and visualized a universal man in Indian philosophy in his famous Nobel-winning Gitanjali:

“When one knows thee, then alien there in none,

Then no door is shut. Oh, grant me my prayer that

I may never lose the bliss of the touch of the one

In the play of the many.”

Neo-liberal Mafia

Off late due to increased westernization from 80’s, many religious gurus are professing faith in neo-liberalism that includes market fundamentalism, consumerism, welfare retrenchment, and liberal governance, away from Gandhi’s idea of Hindu economics. These revivalist gurus are professing a mix of economic efficiency, ambitious individualism beyond the traditional Hindu society, selfish narcissism, acquisitiveness and excessive materialism for their followers that are taking over the traditional Hindu ethos of toleration and equilibrium in public life. This new culture is feeding the consumer culture and exploiting the traditional Hindu ethos for the sake of new technocratic global-consumer middle class concentrated in few cities.

The Indian people had firsthand experience of this new naked commercialization where huge amounts of money was lost in the bubble busts after bull runs aided by mass hysteria without taking the operating P/E of the sectors into consideration. The new consumer class that is getting huge flows of capital from West, when examined closely, appear both self-centered and riven by paradoxes, seeking validation for their lives from Hindu evangelist gurus even as they acquire the latest consumer gadgets. At the same time this group hasn’t taken the mantle of leadership in religion-socio-economic development, and when compared to similar groups in China or Japan or Korea, they have a  reputation for creating chaos and confusion. (Deb)

This dichotomy in daily ethos among these new adherents of the urban revivalist agenda has created vast number of problems for an average Indian. The neo-liberal professors of this movement such as Subramanya Swamy have paid a nominal lip service to the vast population groups in the country while vocally professing their god given rights for the unbridled consumerism that has sees no responsibility. Some of these new jingoist adherents have identified a caste-superiority based logic in placid Hindu society that legitimizes their dominant position in High-Technology directorships, in Corporate world, in Faculty positions and in Government positions . Researchers have found that the vast masses at the base of the Indian economic pyramid are also affected by the spread of consumer culture. “Increasing desires to consume branded goods that are advertised through television is …a consistent and recurring theme.” Moreover, “intertwined cultural processes of conspicuous consumption, normative change [imposing a link between consumer goods and morality], and [interpersonal] competition” mark narratives of low caste Indian consumers. They reflect an increasingly consumerist content of Indian media that depicts the mythic lifestyles of the rich and famous. (Belk, 2008)

Satyam Scam

For example, during the High technology growth of Hyderabad in 2000’s, this new revivalist mafia tried to hijack the technology growth for their own selfish purpose while locking the vast sections of the population in their flawed pyramid of the new-liberal agenda. The case of Satyam computers highlight the nefarious potential of loose-canons that would burst the high-technology growth (only among Indians). The fraud committed by the founders of Satyam is a testament to the fact that “the science of conduct” is swayed in large by neo-liberal agenda, ambition/greed, and hunger for power, money, fame and glory. Satyam fraud spurred the government of India to tighten CG norms to prevent recurrence of similar frauds in the near future. The government took prompt actions to protect the interest of the investors and safeguard the credibility of India and the nation’s image across the world. If the government didn’t take action in time the scandal had the potential to spiral into mass hysteria that would have jeopardized the entire IT sector that employed 2.5 million people around that 2009.

Satyam fraud details

From being India’s IT “crown jewel” and the country’s “fourth largest” company with high-profile customers, the outsourcing firm Satyam Computers has become embroiled in the nation’s biggest corporate scam in living memory (Bhasin, 2009)

Satyam ownership model was flawed from the perspective of good corporate governance. There may be three factors responsible for this. The factors are not the causes of global and colossal fraud, but they provide an enabling environment for abuse and delusion.

  1. First, being a publicly owned company, Satyam could raise capital inexpensively if its existing shareholders assigned it a high value. Hence, in order to attract capital from public, it was under pressure to overstate profits to keep the company’s bonds and equities in high esteem. The promoters formed informal partnerships with this neo-liberal mafia all over the world targeting the Hindu temples, Christian and Muslim groups to develop a profitable relationship in the High-Technology sector based on false promises.
  2. Second, the promoter of the company, Mr. B. Ramalinga Raju, owned a very small fraction of the ownership stock. He diluted his holding from 25.6 % in 2001 to 3.6 % in 2009. He could overstate profits with the objective of influencing other shareholders. This ensured that the whole operation was risk free for the Owners in case of volatility in the IT sector.
  3. Third important factor for flawed ownership model may be, Satyam could preserve its fictitious profits without having to pay big taxes because its profits were protected significantly from the normal tax laws. They do not pay taxes on fictitious revenues and 22 profits. There are no penalties. The belief that exempting firms such as Satyam from service tax and corporate income tax will make them competitive is a little ridiculous. Satyam would not have overstated its revenues and profits if it had to back both with real cash. A big part of the blame for the colossal fraud thus belongs to India’s trade and fiscal policy makers who gave an uneven advantage to the neo-liberal technology mafia while ignoring the basic fundamentals of the High technology and its impact on the vast reaches of the population.

The owners maintained a consumer relation with the neo-liberal mafia over the period of 2 decades and won numerous corporate awards all recommended by this mafia. In 2007, Ernst & Young awarded Mr. Raju with the ‘Entrepreneur of the Year’ award. On April 14, 2008, Satyam won awards from MZ Consult’s for being a ‘leader in India in CG and accountability’. In September 2008, the World Council for Corporate Governance awarded Satyam with the ‘Global Peacock Award’ for global excellence in corporate accountability”. The company provided vast sums of money to this neo-liberal mafia by funding many higher education institutes such as IIIT, CCMB etc… thereby ensuring and addicting to consumerism the placid Hindu masses.

The promoters successfully cashed out of the company in an immoral relationship with the neo-liberal mafia over the period of 10 years. The cashed money was used in funding the real-estate companies and the socio-educational entities that would support this neo-liberal agenda and in future lay the foundations of the political takeover of the State governments. The owners were successful in creating a huge network of bogus companies that catered to this neo-liberals while systematically subjugating the vast populations to the consumerism. The owners of Satyam in an unethical relationship with this neo-liberal mafia wrongfully tried to influence fiscal and monetary policy of the Southern States by systematically taking over the social, agricultural, financial, educational, governmental, and meteorological aspects of the morbid agrarian population using an aggressive socio-economic agenda that created a new ecosystem of these fraud companies. The idea was to take over the top positions in the corporate, financial, judicial, religious and political eco-sphere of this new ecosystem.

polyp_cartoon_climate_extinction1

The government acted swiftly by arresting numerous managers for Income Tax evasion and the directors on numerous criminal charges. However the promoters of Satyam were able to show accounting fraud and go to prison while the neo-liberal mafia behind the company is free.

Requirement for newer controls

However this episode highlights the lack of controls at the government level on managing the IT growth and the neo-liberal mafia. The neo-liberal mafia was successful in promoting Mr. Raju as the poster boy of IT revolution and got an international audience with likes of Bill Gates, Bill Clinton, Hillary Clinton etc.. and subsequently benefited in the western countries such as United States and Canada by monopolizing many jobs in number of sectors.

The limits and responsibilities of operating a IT company catering to rich western clients were not defined properly in the existing company law. This is high-time the bureaucrats open their eye to this new pyramid scheme wrecking havoc on the age-old society in India. There should be harsher criminal punishments for people caught manipulating socio-political-economic environment for selfish greed.

Works Cited

Belk, V. a. (2008). Weaving a web: subaltern consumers, rising consumer culture, and television. Sage.

Bhasin, M. L. (2009). Creative Accounting Practices at Satyam Computers. Creative Commons Attribution 4.0 .

Datta, S. (2003). W (h) ither Indian Mind . IJT.

Deb, S. https://www.thenation.com/article/spoils-indian-democracy/.https://www.thenation.com/article/spoils-indian-democracy/.

Advertisements

Will Robots spell trouble for the BPO industry

Introduction

Robotic Process Automation (RPA) is the new technology driven business process automation set to take over the Business Process Outsourcing (BPO). The saying on the streets is, if a BPO provider is embracing the benefits of RPA or other transformative technology in the next year, they’re going to have plenty of business.  Providers who refuse to innovate may find themselves in the dust. RPA can help BPO providers get up to speed and offer great new services to their existing clients.  Traditional outsourcing won’t disappear overnight, but RPA can take those relationships to a new level today.

RPA

The current sophistication of the technology is still at beginner level for integration in the process pipeline. The impact on process automation is estimated at 20-40% only of the overall customer requirements, however with the increased Artificial Intelligence research and IoT technology improvements there is a huge scope in future for this number to increase. Today’s emerging RPA tools, such as Automation Anywhere, Blue Prism and UiPath, would cost around one ninth of a Full Time Equivalent (FTE) person working in, say, the UK or US, or a third of the cost of an FTE working offshore (say India) and could replace up to 20 FTE after process re-engineering. What RPA does is completely skew the business case dynamics of outsourcing: large, global organisations, such as Infosys, Wipro, TCS, Capgemini, Capita, etc, who have built their business model around employing more and more people, will now have to completely change their whole mindset to cope with the opportunities and threats that RPA brings. [Andrew Burgess, 2016] A recent CIO Journal article noted that the market for RPA is expected to jump from $183 million in 2013 to $4.98 billion by 2020. Further, The Age of Smart Process Automation (SPA) that uses AI with machine-learning capabilities just is around the corner. The outsourcing global organizations are investing heavily in this technology, For example, Cognizant acquired Trizetto; Wipro has created an AI platform called Holmes; TCS is working on an AI platform called Ignio; and Infosys has announced a major investment in automated capabilities. While RPA is likely to cannibalise existing revenue streams of the BPO players to an extent, BPO players can offset this by adopting an annuity-based business model where the players generate revenues by selling robotic software and also by managing every robot that they operate for their clients.

In Finance and Accounting, many deals are mature and rooted in legacy models, the work is highly transactional, and buyers have been stuck with the same FTE loads for years (or decades). But the real reason why F&A is starting to deliver real potential for R-BPO is the simple lack of widely accepted enterprise F&A SaaS which can fix the dysfunction of a process, with a broad-brush implementation and hefty license fee. We are seeing it in pockets with SaaS solutions such as Workday FM, Netsuite and even FinancialForce, but it’s the ultimate failure of F&A to over-rely on legacy technology, maintain strict controls that defy collaboration, and keep bloated numbers of people to deliver legacy processes that is creating a huge potential new market for robotic-led processing and human augmentation. [Phil Fersht, 2016] Forrester estimates that RPA and machine learning will cause the number of U.S. “cubicle workers” to decrease by 16%, or 12 million workers, by 2025. KPMG suggests the worldwide total could be as much as 100 million jobs. “In the next 15 years, it’s likely that 45 percent, and maybe up to 75 percent, of existing offshore jobs in the financial services sector will be performed by robots, or more precisely, robotic process automation (RPA),” stated Cliff Justice, KPMG LLP (KPMG) Advisory principal.

“That should translate into enormous costs savings of up to 75 percent for firms that get on board.” [KPMG]

To imagine the scale of potential impact on the current industry, the BPO sector globally is currently worth over $300bn. In India alone, more than 3 million people are employed doing BPO work; in the Philippines there are another million. Across Europe and the US millions more workers earn their living through BPO. RPA will have the potential to impact every single one of those jobs. The Indian BPO industry had revenues of Rs 1.86 lakh crore in financial year 2016, according to Nasscom. It employs 1.1 million people exclusively for outsourcing business. India’s share of the global BPO sourcing market is around 38 per cent. However, apart from Governance issues , pursuing arbitrage in established outsourcing destinations such as India, Philippines & China is becoming less desirable due to rising commodity and living costs. Moreover, outsourcing of labor intensive and rules-based processes leads to human-errors and makes the business vulnerable to security breaches and fraud. Replacing with RPA from the perspective of enterprises or end clients, can lead to significant benefits such as improved efficiency, reduction in the number of FTEs required to handle a process, cost savings, and improved ability to reach meet the SLA targets and KPIs. In some of the traditional markets there will be no significant change likely in the approach of large US companies until the new administration settles in and drafts new laws to deal with these newer technologies and the offshore industry.

Offshore Regulations

But there is no specific law in India that regulates outsourcing transactions except in relation to telecommunication services. Most Indian BPO companies follow the global standards of certification. However, data privacy and integrity concerns related to outsourcing have emerged as the biggest concerns for the clients of Indian BPOs. Nasscom is in talks with the government to set up a nodal agency to monitor, collate and disseminate information on international IT frauds involving Indian entities.

Frauds

There were many instances of fraud in the offshore industry particularly the IRS telephone impersonation scam.  There were instances where victims in the US were threatened with tax investigation by call centre executives of these firms pretending to be officials from the IRS. Software industry experts and officials from enforcement agencies in the country feel that absence of regulations to monitor BPOs, high unemployment rate and slow conviction in criminal cases have together made India a hub for such activity.

The Treasury Inspector General for Tax Administration (TIGTA) has only seen a rise in the IRS impersonation scam in the US with an average loss of more than $5,700 per taxpayer. “The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of more than one million contacts since October 2013. TIGTA is also aware of more than 6,700 victims who have collectively reported over $38 million (Rs 253 crore) in financial losses as a result of tax scams,” a July 2016 release of TIGTA stated. As a part of its consumer awareness and protection program, TIGTA released several alerts and YouTube videos explaining the modus operandi of IRS impersonators. “TIGTA is concerned that the recent arrests in India will not bring a total halt to the IRS telephone impersonation scams,” said J Russell George, Treasury Inspector General for Tax Administration, in an email response to The Sunday Express. “Members of the public cannot and must not let their guard down,” he added.

Regarding incident where BPO employees allegedly duped over 6,000 US citizens of at least Rs 500 crore, “This particular incident is not much of a BPO issue. We should not call them (Thane call centres) BPOs. These are companies run by criminals to commit fraud. Having said that, we have recognised the issue and are closely working with law enforcement agencies,” R Chandrasekhar, president of Nasscom, said. “We are ready to provide whatever help possible to the police to get to the bottom of such cases. We are committed to make India safer,” he said.

Conclusion

Notwithstanding some frauds, Since the reality is that India brings a great advantage to the IT and BPM (Business Process Management) industry through low-cost and simplicity, there is a great chance that the indian players will have a slice of the RPA in the long run.

References

  1. How robotics is changing the face of Business Process Outsourcing, Robohub, Andrew Burgess, 2016.
  2. Why it’s time for Robotic-BPO to break the mold of legacy F&A engagements, HorsesforSources, Phil Fersht, 2016.
  3. Rise of the robots, KPMG Report.

Corporate fraud in Software industry

Unprecedented corporate fraud in Software History

An estimated $1.5 billion (Rs 7600 crore) may have disappeared in the fraud confessed to in 2009 by the now-jailed chairman of Satyam Computer Services Ltd. Satyam’s failures were many and systemic—from a weak auditing process to ineffective board oversight to a leader intent on committing fraud. For corporate leaders, regulators, and politicians in India, as well as for foreign investors, this “Enron moment” demanded a reassessment of the country’s progress in corporate governance. The resignations of an unprecedented 620 independent directors over the following year added to the mounting concerns.

As a consequence, India’s ranking in the CLSA4 Corporate Governance Watch 2010 slid from third to seventh in Asia. The CLSA report stated that India “has failed to adequately address key local governance challenges such as the accountability of promoters (controlling shareholders), the reputation of relatedparty transactions, and the governance of the audit profession.” The ensuing debate over reform approaches has raised such questions as, “How well are India’s companies being governed?” “Why the failures?” “Where were the regulators?” “What must be done to ensure that directors abide by best practice?”

http://www.business-standard.com/article/opinion/pratip-kar-lessons-in-corporate-governance-110051000024_1.html

http://www.ifc.org/wps/wcm/connect/1fe292804a4785e6824d9faa52ef3b86/PSO_23_Pratip.pdf?MOD=AJPERES