The power of blending forensic accounting and corporate intelligence skills in fraud investigations

January 2020 | SPOTLIGHT | FRAUD & CORRUPTION

Financier Worldwide Magazine

January 2020 Issue

Forensic accounting and corporate intelligence skills have both long been essential elements of any effective investigation of suspected fraud or other malfeasance. In the public eye, the importance of the second of these disciplines is frequently underestimated and the potency of blending the two is seldom well-understood.

This article aims to highlight a few of the common knotty features of fraud investigations which this combination of expertise can be helpful in unpicking.

To set the scene, it is helpful to recall that on any given company – and indeed on the company’s individual actors – there will be both a concentrated pool of information held (for the most part confidentially) within the company itself and a rather more dispersed cloud of information held in various forms outside the company. In the former case, various categories of relevant information can be found within a company’s books and records or can reside within the heads of its employees. On any fraud investigation, forensic accountants will seek access to as large a pool of relevant proprietary information as possible. The domain of corporate intelligence professionals, meanwhile, is all the pertinent information which lies outside the premises of the company and its closest advisers – its bankers, accountants and so on.

In many investigations of alleged corporate fraud, securing access to the necessary proprietary records – or to key staff for interview – can prove a difficult and frustrating process, even more so for records of alleged third-party conspirators whose obligation to cooperate with such an investigation is less clear.

In such circumstances, the ability of corporate intelligence specialists to quickly identify and retrieve reliable evidence scattered outside the company is both an important and necessary skill and often serves to inject crucial momentum into the early stages of an investigation. Specialists can even identify information which can be used as a lever to overcome foot-dragging and encourage cooperation by key parties. Such a situation is just one example of a virtuous feedback loop which can be created from forensic accounting and corporate intelligence teams working effectively in tandem and sharing new information rapidly as it emerges.

This, in turn, can significantly reduce overall costs on an investigation by identifying some of the most fruitful areas for enquiry early on, enabling a tighter focus overall.

A good corporate intelligence professional is adept not only at identifying and retrieving information from a wide array of sources which may be spread across numerous jurisdictions, and in different languages, but equally at analysing, interpreting and contextualising such information, before pinpointing its relevance to the matters at hand.

What might be the repositories of such potentially pivotal evidence?

Organising site visits by agents with investigative journalist skills can be of primary importance, whether simply to examine signage at a company’s premises and the condition of the site or to approach and speak to people locally. Are there clear signs of a company having active operations at a given address? Is an industrial plant in working condition? Did public events supposedly funded or sponsored by suspects take place, and if so on what scale? Is a real estate development into which millions of pounds have been invested anywhere near complete or even underway?

A range of public record documents can also include gems of information that can blow open an investigation and flatly contradict claims made by a company’s management or key employees. Pricing data published by state bodies can be used to demonstrate that an investment could never have been financially viable, lending weight to suspicions that it may have been a vehicle for money laundering. One need only look, for instance, at the economics of the power generation sector in certain countries. Historical pricing data, alongside other public records, has also been used to show that real estate transactions have been made at significant undervalue to related parties.

In other cases, diligent enquiries through a combination of electronic databases, such as company information databases, press archives, litigation records, electoral roll or residential records, open internet research and locally-retrieved hard copy documents, including corporate registry and property ownership records, have been used to prove longstanding, close connections between supposedly independent parties. In one such case, for example, a recently created offshore company which made a large, suspiciously well-timed – and subsequently retracted – order to a struggling company, thereby helping it to secure a development grant, had been established by individuals close to the company’s owner-managers.

In many towns heavily dependent on a handful of sizeable employers, journalists working for local publications can be extremely assiduous in their reporting when such employers court controversy, and such reporting, often in publications too small to be included in major press databases, can prove invaluable to investigators. Investigative news reports of this kind have been used to make an unanswerable case that a wealthy individual manifestly has a significant, but hidden, ownership stake in a company, and as evidence of multiple meetings between a company’s management and specific local politicians.

Findings of this sort can carry huge weight but, when combined with the analysis of forensic accounting investigators, their power is further enhanced, and they can lead to irresistible conclusions. It is the seamless blending of these two very different investigative approaches which can, in many cases, be the making of clear-cut success on a fraud investigation.

Alexander Davies is head of corporate intelligence and Kaley Crossthwaite is a partner at BDO LLP. Mr Davies can be contacted on +44 (0)20 7893 3988 or by email: alexander.davies@bdo.co.uk. Ms Crossthwaite can be contacted on +44 (0)20 7486 5888 or by email: kaley.crossthwaite@bdo.co.uk.

Alexander Davies and Kaley Crossthwaite

BDO LLP