Rapid advances in global trade and information technology appear to have increased the speed with which cross-border crimes are committed, yet most companies are unprepared to investigate fraud promptly if it occurs in a country other than the home of the parent company, according to research by KPMG International.
With 92 percent of respondents in a survey saying that they expected to perform at least the same number of international investigations in the coming year as last year, 56 percent acknowledged that they have not implemented comprehensive investigation procedures.
“Companies need an effective fraud detection and investigative capability that is painstakingly disciplined and lightning fast – a virtual Corporate Crime Scene Investigations, unit,” said Richard H. Girgenti, the Forensic National Practice leader for KPMG LLP. “In addition to financial loss, an ineffective investigative process can adversely reflect on an organization’s reputation, its risk management abilities, and its commitment to good corporate governance.”
Examples of recent fraud cited in the study, “Cross-Border Investigations: Effectively Meeting the Challenge,” at http://www.us.kpmg.com/news/index.asp?cid=2439, include a global airline based in Asia [that] belatedly discovers a travel agent operating in a number of countries uses its reservation system to steal at least $5 million. An international energy concern based in Africa learns that one of its executives illegally diverts some of its product from one country to a business in which he owned an interest that is located in another country.
Complicating cross-border investigations are constant changes in laws and regulations in the U.S. and countries around the world. “Ever-changing regulatory and policing procedures...can stymie an investigation,” said Phillip D. Ostwalt, KPMG Forensic partner. “Companies should establish broad investigative procedures, knowing that they should be tailored to each respective country, ideally with a well-trained local team that knows the language, culture, and legal and regulatory environments.”
Significant challenges identified by executives surveyed include:
- Cultural, language and legal differences
- Identifying what should be their initial response to an incident of alleged fraud
- Not having an investigative team with the right technical skills and experience, and
- The availability and accessibility of electronic data.
Girgenti suggested the following steps that executives can take to improve their international investigation of fraud:
- Assess and benchmark their organization's investigation competence against industry-recognized "better practice" capabilities;
- Assess their investigation protocols and ensure that the board and audit committee are informed of all critical issues;
- Ensure a single, global point of accountability for reporting incidents of fraud and misconduct;
- Educate investigation teams on managing fraud and misconduct issues across borders;
- Develop a written incident-response document that includes a comprehensive set of protocols;
- Evaluate local legal requirements and the ability of the organization's IT organization to promptly retrieve data from systems in disparate global locations;
- Involve legal counsel in all aspects of creating initial investigation protocols and operating procedures; and,
- Employ outside resources with significant industry knowledge and global investigations experience.
Girgenti said that almost 80 percent of the survey respondents believed that in the next five years proficiency in information technology will be more important that it is now to the success of cross-border fraud investigations.
The KPMG survey was conducted during late 2006 and early 2007 among 103 senior business executives in North America, South America, Europe, Asia, Australia, and Africa who are responsible for cross-border investigations.