Category: Fraud and Forensic Investiagtions or Accounting and Compliance

FCPA – Mergers & Acquisition Due Diligence

When a company acquires another company, the successor company can be liable for the acquired company’s activities before acquisition. The U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) have administered Foreign Corrupt Practices Act (“FCPA”) enforcement actions against successor companies in cases involving egregious and sustained violations, where the successor company directly participated in the violations, or where the successor company failed to stop the misconduct from continuing after the acquisition.

This writing explores some key steps that should be taken pre and post acquisition.

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DOJ Unravels a Decade-Old Scheme that involved Kickbacks, Money Laundering, Sham Shell Companies, and Fake Invoices

According to evidence presented at trial, Aleksandr Pikus, 45, of Brooklyn, New York, and his co-conspirators perpetrated a scheme through a series of medical clinics in Brooklyn and Queens over nearly a decade.   The clinics employed doctors, physical and occupational therapists, and other medical professionals who were enrolled in the Medicare and Medicaid programs.  In return for illegal kickbacks, Pikus referred beneficiaries to these health care providers, who submitted claims to the Medicare and Medicaid programs.

Pikus and his co-conspirators then laundered a substantial portion of the proceeds of these claims through companies he controlled, including by cashing checks at several New York City check-cashing businesses.  Pikus then failed to report that cash income to the IRS.  Instead, Pikus used the cash to enrich himself and others and to pay kickbacks to patient recruiters, who, in turn, paid beneficiaries to receive treatment at the medical clinics.  The evidence further established that Pikus and his co-conspirators used sham shell companies and fake invoices to conceal their illegal activities.

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Fraud tip Friday! Coming soon the New EU Whistleblower Protection Law

Soon all public and private organizations in the EU with more than fifty (50) employees will soon be required to comply with a new EU Whistleblower Protection law. The new law highlights the importance of responsive, transparent, and timely whistleblowing case management. So just implementing a hotline is not enough. Organizations must consider confidentiality, acknowledgment of the tip or compliant, response times, the competence of persons receiving the reports, communication with the whistleblower, and feedback on how the case is being processed. The new law also includes the right to report concerns externally while remaining legally protected. That’s a risk organizations must avoid. With the December 2021 deadline fast approaching, there is no better time for management and boards to act. 

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The Enterprise Risk Resilient Ecosystem

In July 2020, The Institute of Internal Auditors (“IIA”) updated its Three Lines of Defense Model (“Model”) to emphasize more active forms of risk management and governance that appear to go beyond merely defensive maneuvers made by the internal audit function.  

Some believed the old model sent a message that we should fear risk. I never saw it that way. I understood the subliminal message was the model was about achieving objectives, which requires both the creation and the protection of value. The new model does a much better job of confirming that risk management contributes “to achieving objectives and creating value, as well as to matters of “defense” and protecting value.”

Learn why the Enterprise Risk Resilient Model might be a better choice.

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Baker Tilly’s Forensic Investigations, Compliance & Integrity Practice Continues to Impress and Grow!

Our experience conducting fraud investigations, domestically and globally, allows us to advise our clients on measures they can take to prevent fraud from occurring and detect issues before they expand. Our clients look to us to design anti-fraud programs and controls, perform anti-bribery and anti-corruption compliance assessments, and perform proactive fraud examinations to identify possible red flags or indicators of fraudulent activity. Because of our collective skills and the depth and breadth of our experiences, we are also able to design and enhance compliance programs and serve as integrity monitors. 

Correcting deficiencies, addressing gaps in controls, and remediation of specific issues is important at the end of every investigation to prevent the same or similar frauds from recurring.

We address these important client needs at the end of our investigations and can assist with implementing remedial actions.

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Webinar – July 28, 2020 – Best Practices for Conducting Remote Internal Investigations

In this pandemic era, global companies have been challenged to maintain a reliable and effective internal investigation program. Companies have relied on remote investigation strategies to collect and review documents and conduct interviews. In conducting remote investigations, companies have to ensure that they follow investigation requirements, maintain the confidentiality of the process, and comply with applicable data privacy rules and security requirements.

In this webinar, Jessica Sanderson, Partner at The Volkov Law Group, and Jonathan T. Marks, Partner| Leader of the Global Forensic Investigation, COmpliance & Integrity Practice at Baker Tilly, will discuss best practices for conducting remote internal investigations. They will outline strategies for collecting and reviewing documents, analyzing financial data, and conducting interviews using remote technologies.

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The Continued Evolution of Best Practices for Compliance Programs

In 2019 and 2020, the federal government released significant information which directly impacted compliance professionals. We cover all three releases in this eBook, the 2020 Evaluation of Corporate Compliance Programs – Guidance Document, the 2019 Framework for OFAC Compliance Commitments, and the 2019 Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations.

These three documents provided not only the government’s refreshed thinking on what constitutes a best practices compliance program. I have combined all three onto a best practices document.

SEC & DOJ Release Second Edition of the Resource Guide to the U.S. Foreign Corrupt Practices Act

The SEC and DOJ Resource Guide is intended to provide information for businesses and individuals regarding the U.S. Foreign Corrupt Practices Act (FCPA). The guide has been prepared by the staff of the Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission.

The key changes to the Second Edition reflect developments and issues that are well-known to experienced practitioners. Nevertheless, the updated Guide emphasizes the importance of effective (and “adequately resourced”) compliance programs, risk-based diligence efforts, and voluntary self-disclosures.   

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Fraud On The Rise is No Surprise!

Last week, the Association of Certified Fraud Examiners (” ACFE”) published the results of a survey taken by more than 1,800 anti-fraud professionals in late April and early May 2020, while we were deep into the Covid-19 crisis.  The findings, for the most part, are not surprising, but does reveal some disappointing information.  While I have not seen a raw copy of the survey, I was surprised the ACFE didn’t ask if the company’s fraud risk assessment was reviewed and modified accordingly.

In addition, the survey highlights trends in the overall level of fraud. Survey respondents provided information about their current observations and expected changes regarding ten (10) specific types of fraud.

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DOJ Revises its Guidance on the Evaluation of Corporate Compliance Programs

Without any fanfare, the U.S. Department of Justice Criminal Division has once again revised its Evaluation of Corporate Compliance Programs (“ECCP”).  The ECCP  remains  organized around three overarching questions that prosecutors ask when evaluating compliance programs, with some revisions, which are in bold text below:

Is the corporation’s compliance program well designed?
Is the program being applied earnestly and in good faith? In other words, is the program being implemented adequately resourced and empowered to function effectively?
Does the corporation’s compliance program work in practice?

While most of the document is identical to the 2019 Guidance, there are subtle and noticeable revisions.  The revisions appear to be designed to help provide additional clarity when answering the above three questions. 

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The Next Level of Investigations

Many investigations are currently being performed remotely, in concert with the general counsel, the chief compliance officer, the chief audit executive, and depending on the how the allegation was triaged, with outside counsel, a forensic accounting firm, and the board.  Even government prosecutors are interviewing witnesses remotely.

The primary goal of the interview is to elicit information in a non-coercive manner. My personal preference is always to conduct interviews face to face because I can control the subject and the environment, and evaluate the nonverbal behavior of the interviewee.  But, if performing a face-to-face interview is not possible, I suggest using video over the telephone.

This writing provides some suggestions for techniques to consider when conducting internal investigations remotely.

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Internal Investigations and Keywords

Investigative search terms are specific to each situation and are a primary tool used by the investigation team to identify possible relevant information in a data set. However, overly broad or poorly chosen terms or keywords can produce excessive and irrelevant results, or worse, miss the  “smoking gun” e-mail or document. Additionally, have you thought about the list of search terms or keywords being privileged or protected opinion work product in the context of an internal investigation?

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COSO Releases Thought Leadership on Risk Appetite

Organizations encounter risk every day as they pursue their objectives. In conducting appropriate oversight, management and the board must deal with a fundamental question: How much risk is acceptable in pursuing these objectives? Added to this, regulators and other oversight bodies are calling for better descriptions of organizations’ risk management processes, including oversight by the board.

COSO has released a thought leadership piece to help understand and communicate risk appetite, an amorphous concept to many.

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Tone from the top: Leadership’s challenge during a crisis

Leaders must find ways to engage with their people to motivate them, and this becomes increasingly important during uncertain or trying times. If done correctly, talking can be incredibly powerful. It can help relieve anxiety and help people find the strength they didn’t know was in them. Studies have shown that talking shuts down the brain’s fear center.

As Dr. Judson A. Brewer stated in a recent New York Times article, “Anxiety is a strange beast. As a psychiatrist, I have learned that anxiety and its close cousin, panic, are both born from fear.”

Fear and anxiety can be debilitating. Without proper communication in a crisis, it’s easy for people to spin and spread stories of fear, creating social contagion. To balance this tendency, in a crisis, leaders need to take their “tone from the top” to the next level.

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Whistleblowers: Tipsters not trusting the system? Here’s how to win them back

Whistleblowers: Tipsters not trusting the system? Here’s how to win them back.

Anonymous hotlines and tip-reporting structures are useless, of course, if informants don’t trust them. Employees won’t blow the whistle if they fear reprisals. So, their concerns often don’t enter case-management systems and frauds continue. Here’s how to earn back their trust, take them seriously and transform raw tips into valuable fraud examinations.

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Whistleblowers: A Fraud Triage System

As the use of whistleblower programs continues to grow, many organizations find themselves struggling to manage burgeoning caseloads. As a result, serious fraud investigations can be delayed (with mounting losses) while less consequential complaints are being investigated. The lack of a timely, systematic and repeatable process for evaluating and prioritizing whistleblower tips that contain allegations of ethical breaches can also expose an organization to increased regulatory risk.

While there is no single, “right” method for following up on whistleblower complaints, the most effective approaches often resemble the medical triage programs that hospitals and first responders use to allocate limited resources during emergencies, or a crisis situation.

Here are some useful guidelines for designing and implementing a fraud triage system.

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Board Overconfidence: An Often Unrecognized Risk

Directors on corporate boards are – almost by definition – men and women who are accomplished and successful. So it is only natural that most board members also are highly self-assured and confident in their judgment and abilities.

When that self-confidence is misplaced or overstated, however, the consequences can be costly. This is particularly true when overconfidence causes board members to underestimate or overlook the risks associated with fraud or management incompetence. Moreover, when board overconfidence is compounded by management overconfidence, the risks can multiply quickly.

Once the dangers of overconfidence are understood and appreciated, board and management teams alike can begin taking proactive steps to mitigate the risks. Knowing the warning signs of board overconfidence is an essential first step.

The Role of the Board of Directors in Compliance Oversight

Under the U.S. Federal Sentencing Guidelines, in order to receive credit for having an effective compliance program, and thereby reduce the fines imposed on the organization, a Board of Directors must be “knowledgeable about the content and operation of the compliance and ethics program,” and must “exercise reasonable oversight with respect to the implementation and effectiveness of the compliance and ethics program.” In addition, in criminal actions against a business organization, including the FCPA, the DOJ’s Justice Manual instructs prosecutors to ask and answer several questions, including: 1) Do the Directors exercise independent review of the company’s compliance program? and 2) Are Directors provided timely and accurate information sufficient to enable the exercise of independent judgment?

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