Fraud-Related Compliance

Transcription

1 Fraud-Related Compliance Investigating and Reporting 2015 Association of Certified Fraud Examiners, Inc.

2 Investigations, Reporting, and Compliance Investigations benefit victim organizations by: Recovering property Deterring future fraud Promoting a culture of integrity Benefits aside, regulations can require: Investigations of certain crimes Disclosure of the results to the proper authorities 2015 Association of Certified Fraud Examiners, Inc. 2 of 27

3 When Is an Investigation Necessary? Investigations may be necessary to: Fulfill duties of loyalty and care Honor employees rights (e.g., wrongful termination) Halt wrongful conduct Demonstrate that the company has an effective compliance program Mitigate fines and penalties in an enforcement action 2015 Association of Certified Fraud Examiners, Inc. 3 of 27

4 Investigation Team Should consist of a good variety of expertise, but also be limited in number CFEs Legal counsel Auditors Security personnel IT and computer forensics experts Human resources personnel Management representative Outside consultants 2015 Association of Certified Fraud Examiners, Inc. 4 of 27

5 Conducting the Investigation Developing evidence for investigations Testimony, documents, objects, etc. Consult with legal counsel to ensure proper collection of evidence Association of Certified Fraud Examiners, Inc. 5 of 27

6 Sources of Information In-house sources of information Personnel files Computer files and logs Communications (voic s, s, memos, etc.) Prior audits/investigations Access codes Security videos 2015 Association of Certified Fraud Examiners, Inc. 6 of 27

7 Sources of Information Public sources of information Government records and filings Court records Information from company s vendors and customers Third-party information May require voluntary submission or court orders 2015 Association of Certified Fraud Examiners, Inc. 7 of 27

8 Sources of Information Other sources Social networks Digital data analysis Computer forensics Covert operations Informants Surveillance Subpoenas/search warrants 2015 Association of Certified Fraud Examiners, Inc. 8 of 27

9 Conducting Interviews Determining whether an interview is the best way to acquire the desired information Legal issues with interviewing Order of interviews often least to most knowledgeable 2015 Association of Certified Fraud Examiners, Inc. 9 of 27

10 Signed Statements Reduce a verbal confession to a short written statement. The confession should state that it is voluntary and truthful. Provide each element of the offense (intent, damage, etc.). Note specific details (dates, number of instances, etc.) Association of Certified Fraud Examiners, Inc. 10 of 27

11 Reporting the Investigation Report to whoever is overseeing the investigation. Be aware of legal issues in disclosing results. Privileges and confidentiality Statements that could give rise to defamation claims 2015 Association of Certified Fraud Examiners, Inc. 11 of 27

12 Reporting the Investigation Some investigations need to be reported to: Board of directors Audit committee External auditor Regulatory agencies Insurers 2015 Association of Certified Fraud Examiners, Inc. 12 of 27

13 Purpose of the Report Conveys evidence Adds credibility Accomplishes objectives of case 2015 Association of Certified Fraud Examiners, Inc. 13 of 27

14 Know the Reader Internal readers Board of directors Audit committee Internal auditors In-house counsel Potential outside readers External auditors Outside legal counsel Law enforcement Government attorneys Regulatory agencies Insurers 2015 Association of Certified Fraud Examiners, Inc. 14 of 27

15 Report Format Authors and date Brief summary of findings Introduction/purpose Body Results Follow-up/recommendations 2015 Association of Certified Fraud Examiners, Inc. 15 of 27

16 Opinions and Conclusions Opinions should only be on technical matters. Conclusions should be self-evident. Refrain from deciding guilt or innocence Association of Certified Fraud Examiners, Inc. 16 of 27

17 Presenting the Case After presentation of the report, management must decide how to handle the case. Report to government authorities. Optional in certain cases Seek financial recovery. Insurance Litigation Sever business and employment relationships. Take disciplinary employment action Association of Certified Fraud Examiners, Inc. 17 of 27

18 Presenting the Case If further action is not pursued, the reason for not pursing the case should be documented. The audit staff should review internal controls and include the incident in future fraud risk assessments Association of Certified Fraud Examiners, Inc. 18 of 27

19 Reporting to Law Enforcement Reporting could be in the organization s best interest. Decision to report depends on a variety of factors Association of Certified Fraud Examiners, Inc. 19 of 27

20 Reporting to Law Enforcement Advantages Saves litigation expenses Stronger government investigatory power Quicker case resolution Imprisonment as a deterrent Findings are available for civil suits Disadvantages Less control over case decisions Cannot control sentences Penalties may render defendant insolvent Association of Certified Fraud Examiners, Inc. 20 of 27

21 When Is Disclosure Required? FAR (A)(2) requires all government contractors to disclose credible evidence of criminal violations, civil violations, and significant overpayments. Duty to disclose lasts three years after the final payment on the contract. Disclosure must be made to inspector general and affected contracting officer. Failure to disclose is basis for suspension and debarment Association of Certified Fraud Examiners, Inc. 21 of 27

22 Voluntary Disclosure Programs Available when law enforcement has yet to detect a violation. If the agency is already investigating the company, the program may no longer apply. Voluntary disclosure programs offer lenience. Agencies with voluntary disclosure programs include the SEC, IRS, DOJ, and FDA Association of Certified Fraud Examiners, Inc. 22 of 27

23 Voluntary Disclosure Programs Typical benefits of voluntary disclosure: Recommendation by the agency to not press charges Decreased or eliminated fines Decreased sentences Prevention of dissolution of the company for serious offenses Agency will not always grant reprieve Association of Certified Fraud Examiners, Inc. 23 of 27

24 Voluntary Disclosure Programs Whether a disclosure is voluntary varies from different agencies, federal or state. Typically, companies must: Disclose without being compelled to. Be timely (the agency must not have been aware of the violation through independent means, e.g., an informant or the media). Willingly cooperate to remedy the violation. Adopt policies to prevent future violations Association of Certified Fraud Examiners, Inc. 24 of 27

25 Antitrust Leniency Program Department of Justice Antitrust Division Similar to voluntary disclosure programs The first party to confess to participation in an antitrust violation granted leniency Different eligibility requirements for individuals and corporations If Antitrust Division has already learned of the violation may still grant leniency 2015 Association of Certified Fraud Examiners, Inc. 25 of 27

26 SEC Enforcement Manual Decides how much credit to give to cooperating organization based on: The level of assistance in the investigation The importance of the violation The societal interest in holding the organization accountable The appropriateness of the cooperation given the profile of the organization 2015 Association of Certified Fraud Examiners, Inc. 26 of 27

27 SEC Enforcement Manual Seaboard Report credit factors Self-policing, including effective compliance program Self-disclosure Remediation Cooperation with the government 2015 Association of Certified Fraud Examiners, Inc. 27 of 27

28 Deferred Prosecution Agreements Prosecutors agree to drop charges in exchange for the company s cooperation. Requirements usually focus on preventing future occurrences, such as internal controls. Fines still typically attach to DPAs. Example: Arthur Andersen refused a DPA. Filip Memo Department of Justice memo stating the key factor of cooperation is timely disclosure of relevant evidence Association of Certified Fraud Examiners, Inc. 28 of 27

29 DPA Example Fiat Fiat subsidiaries violated FCPA by paying over $5 million in kickbacks to Iraqi officials and falsifying accounting records. Criminal penalty: $7 million Terms for Fiat under the DPA: Mandatory review of current anti-corruption policies Revising and maintaining internal accounting controls Appointing FCPA and anti-corruption compliance officer Ongoing training for employees and contractors Create a reporting mechanism 2015 Association of Certified Fraud Examiners, Inc. 29 of 27

30 Discussion Question #1 Why might you be required to perform an investigation in this situation? 2015 Association of Certified Fraud Examiners, Inc. 30 of 27

31 Discussion Question #2 You decide to commence an investigation into the issue. Who should be involved in the investigation team? 2015 Association of Certified Fraud Examiners, Inc. 31 of 27

32 Discussion Question #3 What evidence do you think will likely be necessary? Discuss the methods you will use to gather information Association of Certified Fraud Examiners, Inc. 32 of 27

33 Discussion Question #4 To whom within the company should you report your investigation? 2015 Association of Certified Fraud Examiners, Inc. 33 of 27

34 Discussion Question #5 Should you report the findings of the investigation to law enforcement? Why or why not? 2015 Association of Certified Fraud Examiners, Inc. 34 of 27