Technology Can Help Startups Reign in Corruption and Graft

The boom in the Indian startup industry continues, particularly in the IT industry. According to a recent report by NASSCOM, the number of start-ups in India is the fourth highest in the world, at more than 3,100 start-ups. The report also predicts that the number is set to increase to 11,500 by 2020. However, start-ups have their own problems; more than 85% fall by the wayside. Corruption is particularly rampant in India and startups are not immune to it. Enterprises just starting out are particularly vulnerable and end up wasting resources on non-productive functions.

“We have problems getting basic things like permission for water and electricity connections, leave alone other clearances. We often end up greasing the palms of officials. I had to pay Rs. 10,000 to get an electricity connection,” said a small entrepreneur from Kanpur, Uttar Pradesh, on condition of anonymity.

The following statistics shows how India is still battling the problem. Right now, the picture is not very encouraging. India is lowly placed in the ease-of-doing-business world rankings, which is published by the World Bank. According to the World Bank Report 2016, it is placed 130 out of 189 countries. Singapore has topped the list and is considered the most attractive destination for business investments. While China is placed at no. 90, Nepal and Sri Lanka have been placed at 99 and 107 rankings, respectively. Pakistan is placed at no. 128. Though India’s position has marginally improved from the past year, it needs a vibrant and dynamic business environment where startups could thrive. Moreover, India is ranked 76 out of 175 countries in Transparency International's Corruption Perceptions Index, 2015. The data indicates that systemic corrupt practices are striking at the root of India’s development trajectory and preventing it from realizing its true potential. Ways to devise graft will have to be found if India wants to become the #1 destination for businesses and investment and a safe haven for budding enterprises.

Axing the menace of graft

Major impediments that startups and aspiring entrepreneurs face are red tape, nepotism and corruption. Apart from battling systemic graft, startups have to contend with corruption within the organization too. According to an international survey that was conducted by the Association of Certified Fraud Examiners (ACFE), an organization typically loses at least 5% of its revenues to fraud. With fraud becoming increasingly difficult to detect due to complexity, especially when there is collusion within the ranks, it needs to be tackled before irretrievable damage is inflicted on a company and its image. According to the study, even in a relatively graft-free country like USA, corrupt practices result in losses running into billions of dollars for enterprises and businesses. Apart from the loss in revenue, fraud, if detected, can lead to huge collateral damage including audit problems and reputation loss.

Consequently, industry experts opine that the regulatory environment needs to be tightened and that the government should ensure transparency in business laws and regulations. They also believe that greater automation and technology would increase transparency and reduced corruption. Campaign such as Digital India and Startup India can succeed only if the government is able to ensure a graft-free environment for businesses.

How technology can increase transparency and remove corruption

One way to reducing corruption within organizations is to automate processes and modern technologies such as enterprise resource management (ERP) can help reduce internal leakage. It can ensure continuous monitoring as all data is collected on a real-time basis, including an enterprise’s invoices, inventory, payroll, business resources—raw materials, cash, production capacity—as well as the status of business commitments. As soon as the data is entered the accounts are updated, leaving little room for manipulation. Thus, ERP can provide a 360-degree view of all operations of a company. Being the digital gateway to an organization’s operations, it is most suitable for uninterrupted monitoring, eliminating chances of oversight, human error, or miscommunication. Moreover, if the software is cloud-based it is even more useful. Cloud technology removes the headache of data security for enterprises as it makes all data available anywhere anytime.

“ERP software can assist organizations ensure compliance, authorization and approval mechanisms, and accounting policies. It can stop fraudsters and other unscrupulous people in their tracks,” said Shashank Dixit, CEO, Deskera, a leading cloud-based ERP provider in the South-East Asia region. According to a survey conducted by the same organization, 62% of Indian enterprises feel that Cloud-based ERP could help weed out corrupt practices.

Another promising technology that has the potential to curb corruption, especially in the developing parts of the world where graft runs rampant, is Blockchains. The technology has been hailed by the World Economic Forum as Technology Pioneer and termed as “the next best thing after the Internet,” by financial experts. A Blockchain is a decentralized distributed ledger which is maintained by a distributed network of computers, requiring no central authority or third-party intermediaries. In Blockchains, each block references the previous block, not by ‘block number’, but by the block’s fingerprint (hash) which is determined by the block’s content, thus making it practically immutable, with no tampering or revision allowed. With their inherent decentralized nature, security and inbuilt resistance to tampering, Blockchains are perfect for recording and retrieving financial data and becoming the single source of truth for any organization. Thus, the technology can rule out any chance of data corruption or breach of data integrity.

All said and done, prevention is the best way to fight corruption. The tighter the anti-graft measures, the more difficult it will be for dishonest persons to indulge in unscrupulous acts. Startups and small and medium enterprises (SMEs) are increasingly finding out the myriad ways in which new-age technology could help them reign in graft.