In an age when criminals can digitally flash stolen money and intellectual property across the globe in an instant, corporations are often unprepared to investigate fraud promptly and effectively if it occurs in a country other than where they are headquartered, according to new research by KPMG International.
In a KPMG survey of senior business executives in 21 countries, 92 percent of respondents said that in the coming year they expect to perform at least the same number of international investigations - and many expect an increase - yet 56 percent said they have not implemented comprehensive investigation procedures. By contrast, 60 percent of the executives acknowledge that planning an investigation remains key to its success.
"Fraudsters operate undeterred by global boundaries," said Richard H. Girgenti, the Forensic National Practice leader for KPMG LLP, the U.S. audit, tax and advisory firm."Therefore, companies must be increasingly vigilant about their ability to prevent, detect and respond to fraud.
"Companies need an effective fraud detection and investigative capability that is painstakingly disciplined and lightning fast - a virtual Corporate Crime Scene Investigations unit," Mr. Girgenti continued. "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."
Mr. Girgenti recalled a situation with a client who, with only days before releasing earnings, received an anonymous letter alleging a series of improper month-end adjustments made at a foreign subsidiary. The writer also suggested that the letter would reach the SEC if a prompt investigation did not occur.
The company indeed determined that an immediate investigation was needed to determine the validity of the allegations in order to meet filing requirements. The company quickly was able to deploy the necessary resources and worked to rectify the situation.
"Multinational organizations often develop one-size-fits-all investigative policies and procedures across the many countries in which they operate, but each nation has its own, ever-changing regulatory and policing procedures that can stymie an investigation," said Phillip D. Ostwalt, a U.S. KPMG ForensicSMpartner. "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."
Executives surveyed by KPMG say they are challenged around the globe by a variety of factors when conducting cross-border investigations. These challenges fall into four main categories including:
• 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;
• The availability and accessibility of electronic data.
In addition, just 48 percent of the survey respondents said their investigative staff had received training during the last six months, while 27 percent had not been trained within the last year.
Mr. Girgenti added that there are steps that executives can take to improve international investigations of fraud, including:
• 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.
Mr. Girgenti said that almost 80 percent of the survey respondents believed that in the next five years proficiency in information technology will be even more important than it is now to the success of cross-border fraud investigations. "Getting better at utilizing technology to combat fraud clearly remains high on the agenda of businesses who want to be able to detect and investigate fraud, as well as recover losses," he said.
The KPMG survey conducted during late 2006 and early 2007 brought responses from 103 senior business executives throughout North America, South America, Europe, Asia, Australia, and Africa who are responsible for cross-border investigations within multinational businesses.
To view the report, Cross Border Investigations: Effectively Meeting the Challenge, visit www.us.kpmg.com/ news/index.asp?cid=2439.