Emerging risks and

challenges in Retail
and Consumer Products
(RCP) sector
A forensic outlook
 The diverse demographic and economic

Recent trends in the RCP sector

•

composition of India’s population makes it

imperative that consumers have access to a large
range of affordable products. However, going
against the norm, many Fast-moving consumer
goods (FMCG) players have increased the prices
of their products in recent years — a brave step
that has paid off for many of them.
• Players have penetrated deeper and entered
tier-2 markets with products focused on local
consumers.
• The E-commerce wave continues to hit consumer
electronics and durables, with the tech savvy
modern consumer now opting for “touch of
the button” shopping and a digital interactive
experience. Companies have also taken to
social media in a big way to get close to their
consumers.
• ;gklj]\m[lagfÈl`]eYfljY^gjhjgÕlYZadalq&
Many big players have taken cost reduction
initiatives including using alternative fuel and
packaging material, relocating their factories and
reducing their manpower costs.
• Dependence on networks of outsourced third-
party vendors has increased for both core and
non-core functions.
• The sector is witnessing increasing instances
of bribery and corruption in recent years. Most
such cases relate to administrative approvals
for projects, which need to be given by various
Government authorities.
• Instances of fraud and corruption have become
bigger and better staged than ever before.

2 | Emerging challenges in Retail and Consumer Products (RCP) sector - A forensic outlook
Questions you need to
ask yourself
Some parameters and related questions RCP companies operating in the Indian market should ask
themselves:

1. Supply chain
• Is the increase in our top line numbers genuine?
• Are our sales targets realistic?
• Is our race to achieve numbers compromising our
integrity?
• How secure is our brand in the hands of
third parties?
3. Adapting to technology
• How effective are our internal and external IT
controls?
• Has our initiation of new communication channels
with customers (e.g., via mobile and the internet)
helped us?
• Is digital data security a high priority for us?

2. Gh]jYlagfYd]^Õ[a]f[q 4. Good governance

• Are our production numbers accurate? • Do we have standardized processes, systems and
• Is cost reduction compromising our controls and robust approval mechanisms in place?
quality? • Are our internal controls capable of preventing/
•  j]o]\]janaf_l`]eYpaemeZ]f]Õl^jgegmj
9 detecting fraud and other malpractices?
marketing spends? • Is management of multiple compliance requirements
• How well are we addressing the opportunity of giving rise to new problems for our organizations?
organized retail (assortment, inventory, pricing,
promotions among others) ?

Emerging challenges in Retail and Consumer Products (RCP) sector - A forensic outlook | 3
Déjà vu?
Given below are some situations that have been faced by many corporates
in the sector recently:

Case 1
Background
• A large-scale FMCG manufacturer faced a recurring issue
— counterfeiting of one of its leading products in select
Indian states. The client had undertaken investigations and
multiple enforcement actions on counterfeiters in the past,
wherein large quantities of spurious products of its brand
were seized.
• During the course of such enforcement actions, large
quantities of genuine packaging material components
were seized.
Problem: leakage in supply chain leading to
counterfeiting
• Slow moving/obsolete stock sold to scrap dealers for
defacing and destruction was being sold in the market for
re-use.
• An unauthorized manufacturer in the vicinity of the FMCG
manufacturer was using packaging material for spurious
products and was sourcing some of genuine packaging
materials from the company’s regular
supply chain.
Case 3
Background
•  emdlafYlagfYdZ]n]jY_][gehYfqÖgYl]\emdlahd]
9
channel support schemes to promote secondary sale of
its product in various markets in India. The retailers
[dYae]\k[`]e]Z]f]ÕlkZYk]\gfkdYZ]da_aZadala]kk]l
by the company.
• The company received complaints from retailers in certain
markets that they were not receiving the total scheme
Z]f]Õlk\]khal]l`]ajZ]klkYd]k]^^gjlk&
Problem: manipulation of promotional schemes
On investigating the issue, the company unearthed the
following modus operandi of manipulation of the scheme:
• Manipulation of secondary sales numbers by clubbing
emdlahd]j]lYad]jklg[dYaeaf[j]Yk]\Z]f]Õlk
• Claims being approved by sales teams for increased
Z]f]ÕlkYf\fglhYkkaf_gfl`]Z]f]Õlklgj]lYad]jk
• Incentive eligibility slabs were manipulated post actual
sales made by the retailers
• Claim cheques being made in the name of the families
and friends of distributors/employees

Case 2 Case 4
Background Background
• A consumer product giant allocated a large portion of it • A global manufacturer of consumer products noticed
marketing spend to host events to promote multiple brands km\\]fÖm[lmYlagfkafl`]kYd]g^alklogc]qhjg\m[lkaf
across India. select markets.
• Al`Y\Y[gfljY[lmYdYjjYf_]e]floal`YfY_]f[q$o`a[` Problem: manipulation in distribution management
stipulated payment at actuals for promotional activities system
Yf\YÕp]\h]j[]flY_]YkY_]f[q[geeakkagf&
A detailed investigation conducted by the company revealed
•  fYdd]_YlagfoYkeY\]ZqYo`akld]%Zdgo]jlgl`]
9 the following irregularities:
[gehYfqÌkeYfY_]e]fl$Ydd]_af_afÖYlagfg^afnga[]kZq
the agency. • Manual invoices (outside the system) being made for sale
to certain retailers
Problem: fraud in events and promotions
• No documentation maintained by distributor for addition
•  `][gehYfqafalaYl]\Yfafn]kla_YlagfYf\^gmf\]na\]f[]
L or deletion of retailers in the system
g^afnga[]kkmZeall]\Zql`]Y_]f[qlgZ]afÖYl]\Yf\
• Sales made to export agents and recorded in the system
that some of its employees were receiving gifts from the
as domestic sales to dummy retailers
agency.
• Huge quantities of domestic sales were diverted to
•  `]Y_]f[qoYk^gmf\lgZ]]Yjfaf_dYj_]hjgÕlkaf
L
company’s key export markets
Y\\alagflgl`]Õp]\Y_]f[q[geeakkagfhYa\lgal&

4 | Emerging challenges in Retail and Consumer Products (RCP) sector - A forensic outlook
 Why does
fraud happen?

• In recent years, there has been a change in motives for management members may also succumb to the pressure
committing fraud — from need to greed. Most cases of of “keeping up appearances” and ignore controls created
recent fraud were committed by individuals who wanted to to safeguard the interest of stakeholders.
make “quick money” to support their opulent lifestyles.
• Control is sometimes overridden, usually under the
• Building networks of outsourced third-party vendors for pretext of it being “good for business,” and ends up
both core and non-core functions, though cost effective, promoting a wrong practice that makes the process
companies often fail to upgrade control and monitoring vulnerable to fraud.
measures to counter the increased risk of fraud. This has
• Most cases of bribery/corruption in the RCP sector relate
been a major deterrent in preventing fraud incidences.
to the need to obtain administrative approvals from various
• Reluctance to change from a traditional approach toward approving authorities. An easy way out taken by companies
business. A robust process is not popular, since it can be is to route such transactions through their third-party
tedious. Furthermore, there are an increasing number of vendors (channel/sourcing/manufacturing partners).
fraudulent instances due to inadequate segregation of
• Inadequate data protection controls has increased the
duties and a high degree of trust being placed on a single
threat of data theft and cyber-crime attacks. In most cases
employee rather than organizations being reliant on robust
perpetrators of fraud are generally allowed or authorized
processes.
to access sensitive information or data to execute their
• It is not always middle or senior employees, but top routine jobs.
management personnel who are also equally capable
g^h]jh]ljYlaf_^jYm\&Af\a^Õ[mdleYjc]l[gf\alagfk$

Emerging challenges in Retail and Consumer Products (RCP) sector - A forensic outlook | 5
Is your business geared to
address fraud-related risk in key
areas?
L`][gfklYfl]ngdmlagfg^l`]J;Hk][lgjafAf\aY`Ykj]kmdl]\afka_faÕ[Yfl[`Yf_]kafl`]fYlmj]Yf\lqh]g^jakck
faced by companies. Given below are some emerging trends in fraud scenarios:

Sr. No Area Fraud scenarios

1. Sales & supply chain Leakage in supply chain
• L`]^lg^Õfak`]\hjg\m[lk'hY[cY_af_eYl]jaYd
• Collusion with vendors of scrap and leakage of product/packaging material scrap
to counterfeiters
• Sale of stolen stock to B2B vendors
• Supply of counterfeit/ cheap products through the grey market
Diversion of products

• ;j]Ylagfg^\]daZ]jYl]'YjlaÕ[aYdklg[c%gmlkalmYlagfZq\akljaZmlgjafk]d][l
eYjc]lk^gj`a_`k]ddaf_hjg\m[lkYf\kYd]keY\]lgj]lYad]jkYlYfafÖYl]\hja[]
• “Piggybacking” of slow-moving Stock Keeping Units (SKUs) by forcing distributor
to buy these along with fast-moving ones
• High dependence on select favoured distributors being selected to sell bulk of
stock
• Kickback received from distributor/wholesaler for favorable contractual terms
and annuity business
• Diversion of domestic sales to export market through unauthorized exporters

2. Logistics & distribution Transportation fraud

• Excess or fraudulent payment made to transporters on the basis of forged

invoices and supporting documents
• Allocation of business on non-contracted/non agreed routes to favored vendors
for kickbacks
• Huge difference in rate at which trucks are hired from the spot market
• Payments made for two trucks by sharing the load of one truck
• Weighbridge-related fraud including manipulation of gross/net reported weight
of trucks or partial unloading of trucks/tankers
• Siphoning off and diversion of goods by transporters
Distribution management

• Manual invoicing outside distribution management system

• Unauthorized sale of free products/gifts
• <meeq[mklge]jk[j]Yl]\lgafÖYl]kYd]k

6 | Emerging challenges in Retail and Consumer Products (RCP) sector - A forensic outlook
Sr. No Area Fraud scenarios
3. Sales promotion Manipulation of trade promotion schemes
• Leakage in disbursement of funds for secondary trade schemes through
distributors
• Manipulation of secondary sales numbers considered for disbursement of trade
scheme
• Dummy cartels (groups/syndicates) created to claim increased incentives under
promotional schemes
• Routing of scheme claim cheques in favor of family and friends
• Incentive eligibility slabs manipulated on the basis of actual sales to claim higher
amounts.
•  YfahmdYlagfg^kYd]kj]lmjffmeZ]jklgj]Ö][lYfaf[j]Yk]afkYd]kYf\[dYae
E
higher incentives
•  hdallaf_kYd]klgj]Ö][ll`]aehjgn]\h]j^gjeYf[]g^dgo%kYd]j]_agfklg
K
increase incentive claims
4. Marketing (events/ media) Manipulation of marketing spends

• AfÖYlagfg^n]f\gjkÌafnga[]kZqe]\aYY_]f[qYf\mk]g^Y\\alagfYd^mf\klgZmq
expensive gifts for customer’s employees
•  YfahmdYlagfg^[gkl]klaeYl]klgaf[dm\]afÖYl]\YegmflkYf\ca[cZY[ckhYa\lg
E
employees
• Vendor invoices routed through intermediaries owned/operated by agency’s staff
(including a mark-up)
• Invoices raised for dummy events
• Kickbacks paid on outdoor media and cinema advertisements
• Payment made for displays for brand activation without actual renting of display/
shelf space
5. Payroll Payroll fraud
• Inclusion of ghost employees in payroll processing documents including salary
j]_akl]j'ZYfcÌkhYqe]flÕd]k
• Ghost employees/Ex-employees included in sales incentive pay-outs/travel
allowance/Dearness Allowance payouts

6. Bribery/corruption Bribery/corruption

• Improper payments various approving authorities

•  hhgafle]flg^l`aj\hYjla]klgeYc]hYqe]flklggZlYafda[]fk]k'[]jlaÕ[Yl]k'
9
sales orders
• Misrepresentation of transactions in accounting records
• Invoices submitted and paid for goods not received/services never performed

Emerging challenges in Retail and Consumer Products (RCP) sector - A forensic outlook | 7
 How can EY help you?

Based on our vast experience in the sector given below are solutions to counter certain key areas of concern for the
RCP sector:

Proactive Proactive

f Data driven intelligence f Background check of

vendors/dealers
f Trend analysis and
visualization f Reputation checks of
companies and individuals

f Field enquiries and market

intelligence-led investigation Background fAnti-corruption (FCPA) due
into the following: Fraud search diligence
analytics services
fLeakage in supply chain f Anti-corruption compliance
Diversion of products program advisory
Shrinkage
Counterfeiting Anti bribery
Anti corruption f Anti-corruption investigations
Grey market Brand Integrity
services
services
fFraud risk assessment
Our
solutions Developing anti-fraud policy

Recommendations on controls
Anti fraud and processes to manage
Fraud services
fraud risk
Investigation
Reactive Assistance in monitoring and
improving anti-fraud controls
f Afn]kla_YlagfYjgmf\kh][aÕ[  Forensic and processes
Dispute
allegations/ suspicions around Technology advisory
third party frauds, employee & Discovery
involvement, collusion,
services Reactive
services
misconduct etc.
f Dispute advisory
f Financial misstatement fraud f Arbitration & litigation support
investigation

f Evidence gathering through

disk imaging and analysis
f Response to IT-related Incident

8 | Emerging challenges in Retail and Consumer Products (RCP) sector - A forensic outlook
Our sector experience

Client engagements executed by us in last four years

70+ FCPA investigations

Proactive
ABAC
compliance reviews
Supplyreview
Proactive
and training
chain leakage
compliance
investigations
reviews
clients we have worked
Employee fraud and embezzlement investigations

300+
with (domestic and
Supply chain leakage investigations
Brand protection engagements
international) Employee fraud and embezzlement investigations
FCPA investigations
in the last four years Brand protection
ABAC review engagements
and training

50+ sector focused

professionals
Including 25+ dedicated
2,00,000+
Employee hours expended
ZqimYdaÕ]\Yf\]ph]ja]f[]\
corporate intelligence forensic professionals
team members

ImYdaÔ]\Yf\]ph]ja]f[]\l]Yeafl`]Yj]Yg^ ;dgk]dqogjc]\oal`\ge]kla[Yf\afl]jfYlagfYddYoÕjekaf
responding to the various regulatory requests
Accounting Information technology

Data analytics Market intelligence

K][lgj`a_`da_`lk Interviews

100+
Logg^l`]dYj_]kl>;H9]f_Y_]e]flkgfZ]`Yd^g^=Qe]eZ]jÕjekafl`]J;H
sector in the recent past
Interview of senior
executives,
Over 15 brand-protection engagements in the last three years to address and functional and
issues relating to counterfeiting, supply chain leakage etc. state heads

Over six proactive ABAC compliance reviews for multinationals

Emerging challenges in Retail and Consumer Products (RCP) sector - A forensic outlook | 9
About EY Fraud Investigation &
Dispute Services (FIDS)
Dealing with complex issues of fraud, regulatory compliance Our services:
and business disputes can detract from your efforts to achieve
your company’s potential. Enhanced management of fraud risk • Anti-fraud and Fraud Risk Assessment
and compliance is a critical business priority — whatever the • Fraud Investigation
industry sector. With our more than 2,000 fraud investigation
• Anti-bribery and Anti-corruption Compliance Services
and dispute professionals around the world, we will assemble
the right multi-disciplinary and culturally aligned team to work • Brand Integrity Services
with you and your legal advisors. In addition, we will provide • Dispute Advisory Services
qgml`]Z]f]Õlg^gmjZjgY\k][lgj]ph]ja]f[]$gmj\]]h
• Competition and Trade Services
subject matter knowledge and the latest insights from our
global activities. • Ethics and Integrity Due Diligence
• Third-party Due Diligence

FIDS India • Whistle-blowing Services

• Supply Chain Compliance
• <]]h[geh]l]f[a]k2Gmj>A<Kl]Ye`Ykkh][aÕ[\geYaf%
related knowledge along with wide industry experience. • Forensic Technology and Discovery Services
• Forensic technology: We use sophisticated tools and • Computer Forensics
established forensic techniques to provide requisite • Forensic Data Analytics
services to address individual client’s challenges. • e-Discovery
• Global exposure: Our team members have been trained on • Software License and Forensic Disputes Services
international engagements and have had global exposure • Cybercrime Investigation and Intelligence Services
to fraud scenarios.
• EYjc]lafl]dda_]f[]2O]`Yn]\]\a[Yl]\Õ]d\hjg^]kkagfYdk$
who are experienced and trained in corporate intelligence,
and are capable of conducting extensive market
intelligence and background studies on various subjects,
industries, companies and people.
• Thought leadership: We serve a variety of leading clients,
which gives us a deep insight into a wide range of issues
that affect our clients and business globally.
• ImYdaÕ]\hjg^]kkagfYdk2O]`Yn]YimYdaÕ]\Yf\
]ph]ja]f[]\eapg^;`Yjl]j]\9[[gmflYflk$[]jlaÕ]\>jYm\
Examiners, lawyers, CIAs, CISAs, engineers, MBAs and
forensic computer professionals.

10 | Emerging challenges in Retail and Consumer Products (RCP) sector - A forensic outlook
 =Qg^Õ[]k
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Near. C.N Vidhyalaya
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Emerging challenges in Retail and Consumer Products (RCP) sector - A forensic outlook | 11
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