Do not ignore safety, compliance in hurry to restore business; big frauds originate from big crisis

Updated: Apr 24, 2020 11:16 AM

There is considerable data on how corruption and frauds stemmed from crises such as Hurricane Katrina, the Tsunami and Kerala floods.

fraud, business restoration, fraud in business, compliance, deloitte, fake, coronavirus crisisThe current situation poses a risk, and organisations should consider using the lockdown as an opportunity to relook at their anti-bribery and corruption compliance programmes.
  • Rohit Goel, Navaz Dubash, Disha Parikh

Your manufacturing process requires a critical material, and your regular (empanelled) supplier is unable to fulfil the requirement, what will you do? Under normal circumstances, you would scout for suppliers and put them through the vendor empanelment procedures, including carrying out adequate due diligence. Thereafter, you would place orders with the identified supplier so that your requirement is met.

However, businesses today are no longer in this position. In the coming months, one may barely have a handful of vendors who can meet requirements. Whether for procuring equipment, financing, or ensuring the safety of their staff, many organisations are forced to find quick workable solutions. These solutions may lead to situations, which can jeopardise years of efforts towards building an ethical enterprise. As far as we understand, man-made and natural disasters are breeding grounds for fraud and corruption. In a demand-supply crunch, companies tend to prioritise business ahead of compliance to meet commitments. There is also an urgency to restore business and make up for time lost, and this pressure is often eased by overlooking certain compliance requirements.

There is considerable data on how corruption and frauds stemmed from crises such as Hurricane Katrina, the Tsunami and Kerala floods. For example, after Hurricane Katrina, a Disaster Fraud Task Force was set up by the US Department of Justice to crack down on Katrina-related fraud; eventually, charges were filed against nearly 1,500 individuals including the New Orleans Mayor who was sentenced to 10 years in prison for corruption and bribery relating to kickbacks for contracts awarded for rebuilding efforts.

The current situation poses a similar risk, and organisations should consider using the lockdown as an opportunity to relook at their anti-bribery and corruption compliance programmes, particularly in the light of new operating models such as remote working. Below are some practical considerations:

Enable transparency of Information: for example, if the approving authority is unable to provide the necessary approvals using the company’s online tools, an email approval could be maintained by the relevant department. Where approvals rely on physical documentation, organisations could consider online tools as alternatives.

Real-time monitoring of business transactions can be undertaken using data analytics to identify anomalies such as high value/round value transactions, first-time vendors, and charitable contributions to unknown institutions. In case of any deviations, corrective and preventive actions could be implemented.

Ensure that escalation mechanisms such as a whistleblower hotline could be put in place and made functional. Additionally, compliance officers could be technical enabled to respond appropriately to suspicions or allegations of any unethical activity reported via these mechanisms, so as avoid delay in addressing such concerns.

Review key policies such as anti-corruption policy, third-party due-diligence policy, Corporate Social Responsibility policy, and relevant procedures so that appropriate guidance is provided to enable compliance during the crisis. As a safeguard exceptional approvals, such as the postponement of the third-party due-diligence, or donations being made without requisite vetting, should not be frequently made under the pretext of the crisis.

Reiterate and reinforce the organisation’s commitment to anti-corruption compliance by communicating the importance of good governance to employees and stakeholders. Refresher training on anti-corruption and anti-fraud topics can also be undertaken.

Conduct a detailed corruption risk assessment after the crisis to check vulnerabilities in areas such as procurement, logistics, payroll, and charitable contributions. This may be done by testing select suspicious transactions to understand how policies were followed—whether there was any legal exposure, and if any remedial measures were necessary.

While there are widespread concerns about the financial implications from loss of business due to the lockdown, organisations must also understand that fraudsters can use this turmoil for personal gains. As most corporate frauds tend to be unearthed only 18-24 months after they were committed, organisations need to be vigilant and stay ahead of fraudsters through better preparedness.

Rohit Goel is Partner, Forensic – Financial Advisory, Deloitte India, and Navaz Dubash and Disha Parikh are Associate Director and Deputy Manager, Deloitte India. Views expressed are the authors’ personal. 

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