Most companies at different stages of their development face the circumstances, when due to any internal or external reason interests of business or property of the company become subject of encroachment on the part of crime-prone employees, managers of the company or unreliable contractors, connected with fraud, abuse of trust, conversion, misappropriation, falsification of documents and other wrong-doings.
In general, corporate fraud means any voluntary acts aimed at unlawful receipt of funds or other assets and property of the company or unlawful avoidance of payment of funds or conversion of assets of the company for purposes of personal benefit and in the prejudice of interests of the company with appropriation of corporate opportunities (position). Here we mean general definition, not limited to the disposition of Art. 159 of Criminal Code of the Russian Federation (fraud), used as the most succinct general term. Thus, corporate (financial) fraud may include encroachment on funds of the company, fraud itself, conversion and misappropriation, property damage, misappropriation of company assets, falsification of documents and corruption-related acts, which are bribes, kickbacks, corrupt business practices. A general feature of these components is gaining of unlawful material benefit in the prejudice to interests of the company.
Business profile, existing management methods, degree of legal culture and discipline, established business traditions and business culture of owners and management of the company determine type of corporate fraud, with which one or another company face in practice. Some types of business face the particular risk of conversion and misappropriation of entrusted property (see materials about peculiarities of safety assurance of different types of trade at this website), other types of business are subject to corruption risks (kickbacks, bribes, corrupt business practices) or encroachment on interests of the company by falsification of accounting or administrative documents (for example, false over-estimation of the company’s indicators by its management to receive unlawful premiums and bonuses).
Receiving information concerning corporate corrupt practices, owners or management of the company must take a decision concerning investigation and determine facts of the case to take decision on the most appropriate measures of reaction to fraud practices.
Which tasks may be assigned by the owner or an administrative manager, connected with received information concerning corporate fraud?
- Return funds (assets);
- Bring guilty persons to criminal (administrative) responsibility;
- Bring guilty persons to property responsibility;
- Bring guilty persons to administrative responsibility;
- Take measures on prevention of such misappropriation in future.
Whatever tasks are set in connection with received information about corporate fraud successful and effective reaction required carrying out of an internal investigation to receive preliminarily information and responses to the following questions:
- Who committed the fraud with the highest degree of probability;
- How the fraud happened and which factors contributed to its commitment;
- Which evidences of guilt are available and which evidences must be received and recorded additionally;
- Which is the preliminarily forecast for this or that method of reaction to fraud (criminal, civil, administrative or disciplinary aspects);
- Which is the probability of repeated frauds in future and which measures of reaction and prevention must be taken to avoid them.
Here it is important to understand that in the event of receipt of information concerning corporate fraud, collection and recording of evidences within the framework of preliminarily internal investigation are absolutely necessary. Appeal to law enforcement agencies based on received information concerning corporate fraud without internal investigation on the ground of suspicions and gossips will hardly be effective (as a rule such appeals result in refusal from initiation of a criminal case or the case collapses at court).
Surely, neither company can or may fulfill the functions of law enforcement agencies, including special investigation activities. But preliminarily internal investigation, interviews with employees, receipt of explanatory statements, carrying out of revisions and inventories, collection and recording of other evidences, including those fixed by access control systems are required measures, preceding appeal to court or law enforcement agencies.
Who must carry out internal investigations of corporate frauds? The answer to this question is not so evident as it may seem at first sight.
Surely, carrying out of internal investigations, as a rule, falls under competence of security service, internal control and internal audit service, legal department and inspection and review service, etc. If a company has no such departments, functions of internal corporate investigations are fulfilled by its management. Anyway, we speak about investigations, which are carried out by internal staff employees.
However, despite of apparent advantages of such approach (preservation of confidentiality of information concerning internal fraud, possibility to “wash dirty linen at home”) investigations carried out by staff employees as often not as effective as they should be. The problem is that corporate investigation often reveals (or at least must reveal) different violations of employment duties connected with control and prevention of misappropriations and abusive practices, which contributed directly or indirectly to corporate fraud. Moreover, such control and prevention function often fall within the scope of job duties of concrete employees of the company, including representatives of management staff, safety service, internal control and internal audit service and legal department. Due to this reason credibility, omnitude and effectiveness of internal corporate investigation in such circumstances may be doubtful, because persons carrying out the investigation will be interested in suppression of facts connected with control and monitoring defects, which contributed to fraud actions. Consequently, one of key objectives of internal investigation, i.e. prevention of corporate fraud, formulation of conclusions aimed at prevention of such fraud actions in future, will not be achieved.
For this reason it is reasonable to engage external consultants, i.e. structures, specialized in financial investigations and having qualified experts in forensic services for internal investigations.
Forensic means specialized expert analytical activities on carrying out of corporate internal and financial investigations, consisting in a system of measures aimed at detection of corporate fraud facts, determination of conditions, providing fraud acts (failures to act), analysis of corporate fraud scheme, search of stolen funds and converted assets, determination of persons implicated in a fraud scheme and development of measures on return of stolen funds or converted assets and bringing of guilty persons to responsibility. Besides that, responsibilities of the forensic group may include preparation of recommendations on prevention of corporate fraud on the basis of data received in the course of internal investigation.
Such activities are based on cooperative work of experts in the sphere of business security, auditors and lawyers, success of which depends on professional qualifications and experience in previous forensic projects.
Since 1998 Alpha-Expert Legal Bureau has carried out more than 50 internal investigations for its clients, the results of which were return of stolen (converted) funds and assets and bringing of guilty persons to criminal, civil, administrative and disciplinary responsibility.
During the period of its operation Alpha-Expert Legal Bureau has gained experience of internal investigation projects in the followings areas: plant engineering and construction enterprises (power-generating equipment manufacturing plant, filter manufacturing factory, woodworking equipment manufacturing plant), leasing companies (leasing of motor transport and construction machinery), production, supply and installation of telecommunications equipment (installation and equipping of telephone stations and telecommunication lines),wholesale and retail sale of furniture and interior items (national sales network), e-shops (trade and logistics), production and wholesale of spare parts and equipment through the national sales network, production of footwear and clothes, wholesale of household appliances, printing business, production of computer hardware, developing companies, etc.
Employees of Alpha-Expert Legal Bureau have all required diplomas and certificates (certificates of security service management, qualification certificates for general and internal audit and IFRS, accreditation in the sphere of anti-corruption activities, academic degrees in Law, etc.) to carry out corporate investigations.
Having experience in implementation of projects of internal investigations and required knowledge in nuances of business processes in different areas Alpha-Expert Legal Bureau may help its clients in different and complicated situations in the sphere of fraud encroachment on property rights, finances and assets of the company. Alpha-Expert Legal Bureau provides a full range of services, from preliminarily control measures to support in criminal and civil cases until delivering of judgment of conviction and (or) decision on return of stolen funds and assets.