Next up, we reached out to Derek Patterson and Emma Hodges who are forensic accountants at Forensic Risk Alliance (“FRA”). Since 1999, FRA has worked all over the world to solve complex forensic issues for multinational clients. They are experts across the spectrum of white collar crimes and dispute resolution, including litigation support, damages valuations and calculations, anti-bribery and corruption, sanctions, anti-money laundering, counter-terror financing, tax evasion, fraud and anti-trust investigations, and compliance testing.
In your opinion, what skills do you need to be a successful thought leader in forensic accounting?
Forensic accountants need to understand the way businesses operate, the risks and challenges they face, and how regulators or a court are likely to consider the issues. One of the most valuable attributes that effective forensic accountants develop is the ability to truly understand and contextualise issues, so that we are able to develop strategies that are targeted and effective for the particular client and specific risk or concern we have been brought in to assess or resolve. This broader perspective is what keeps us attuned to developments in key industries and jurisdictions so we can anticipate trends and help companies prepare.
In what ways does the development of new regulatory risks affect finance functions?
Regulators and enforcement authorities in the UK are demonstrably building momentum in their efforts to tackle corporate economic crime head-on. We are beginning to see the SFO flex its muscles with the conclusion in January 2017 of the largest investigation it has conducted to date (Rolls-Royce).
The enactment of the UK Bribery Act 2010 introduced a section 7 corporate offence of failure to prevent a person associated with the company committing bribery on its behalf. This lead to efforts by companies, often with the assistance of finance personnel or third-party forensic accountants, to consider control activities through a different lens, and to identify, document and enhance internal controls to prevent bribery.
The vital challenge for finance functions is whether they are truly guardians of the company’s assets. Is the finance culture to protect and guard and take independent judgement calls, or is it a deferential function, which simply executes what line management requests. As the UK Ministry of Justice looks for ways to more effectively prosecute corporate economic crime (tax evasion, fraud, false accounting and money laundering) we are seeing an expansion of the risk that companies are at risk of committing economic crime. Boards and Audit Committees must look to their finance functions to design and uphold robust systems of financial control.
How can companies mitigate the risk of corporate economic crime?
The risk of corporate economic crime itself is not new, it is legislative changes that will bring new legal and compliance risks. Companies will need to take stock of their existing policies and procedures and identify what already exists within the existing control framework, potential gaps, areas that need bolstering, and develop a plan for enhancements. This assessment should be informed by a risk-mapping exercise, to ensure that efforts are risk-based, reasonable and proportionate to the business. For example, money laundering risks faced by financial institutions will not be the same as those faced by industrial companies. As the signs point towards companies needing to review and improve procedures to prevent bribery, tax evasion, fraud, false accounting and money laundering, they also signal the need for a streamlined, integrated approach to doing so in order to minimise business disruption, and maximize efficiencies.
What does this mean for companies and their finance functions?
Readiness efforts will lead companies and their finance functions to look at their existing financial controls system in a new light. It will require staff to be trained in different ways so that they understand the overlapping objectives of certain controls, and staff – particularly those in the finance function – should be empowered to ask questions and challenge their colleagues in situations where they have concerns about transactions, for example the counterparty, structure, or the underlying business purpose.
With the push to hold corporates to account for their failings, now is the time for finance functions to find a place at the top of the agenda for preparedness efforts.