Developing an Integrated Anti-Fraud, Compliance, and Ethics Program

Transcription

1 Developing an Integrated Anti-Fraud, Compliance, and Ethics Program Performing Due Diligence 2018 Association of Certified Fraud Examiners, Inc.

2 Discussion Questions 1. How does your organization ensure it is hiring ethical employees? 2. What types of due diligence procedures does your organization perform before doing business with a third party? 2018 Association of Certified Fraud Examiners, Inc. 2 of 27

3 Introduction Management should perform thorough due diligence in: Hiring employees Promoting employees Third-party relationships Mergers and acquisitions 2018 Association of Certified Fraud Examiners, Inc. 3 of 27

4 Due Diligence in Hiring Communicates the company s ethical stance to job applicants Helps ensure known thieves do not enter through the front door 2018 Association of Certified Fraud Examiners, Inc. 4 of 27

5 Due Diligence in Hiring 10% (screen out) 80% (focus of anti-fraud, compliance, and ethics program) 10% (attract to hire) 2018 Association of Certified Fraud Examiners, Inc. 5 of 27

6 Set Clear Expectations Ensure the hiring team is unified in focus on what makes an ideal candidate. Include ethics in the job posting. Have ethics resources and statements where candidates will see them Association of Certified Fraud Examiners, Inc. 6 of 27

7 Watch for Ethical Indicators in Applications Volunteer positions Promotions to increasing responsibilities Serving as a mentor Participation in ethics initiatives Job hopping Decreasing responsibilities between positions Demotions at previous employers Unexplained gaps in employment 2018 Association of Certified Fraud Examiners, Inc. 7 of 27

8 Review Social Media Activity What are they saying online? What are they complaining about? Are they projecting a sense of ethics? Are they presenting the values of the company? 2018 Association of Certified Fraud Examiners, Inc. 8 of 27

9 Screen for Ethics During Interviews Ask questions to assess the job candidate s ethical values. Pose ethical dilemmas. Follow up on unclear or inconsistent answers. Involve ethics leaders from throughout the organization in the interview process Association of Certified Fraud Examiners, Inc. 9 of 27

10 Administer an Ethics Assessment Consider having candidates participate in an ethics or integrity assessment Association of Certified Fraud Examiners, Inc. 10 of 27

11 Conduct Background Checks Work history Educational history Certification and license verification Criminal and civil records Credit checks Drug screening 2018 Association of Certified Fraud Examiners, Inc. 11 of 27

12 Check References Ask candidate s previous direct supervisors about: Employment details (dates, title, duties) Disciplinary or performance issues Whether they would recommend this individual for this position Whether they would hire this individual again 2018 Association of Certified Fraud Examiners, Inc. 12 of 27

13 Due Diligence in Hiring Document reasons for declining qualified individuals. Consider applicable legal requirements and restrictions Association of Certified Fraud Examiners, Inc. 13 of 27

14 Due Diligence in Promotions Tenure Technical skills Favoritism Commitment to core values Supervisory /leadership skills Ethical example 2018 Association of Certified Fraud Examiners, Inc. 14 of 27

15 Due Diligence in Promotions Ask questions related to real-life compliance and ethics scenarios for new position. Perform background checks on employees under consideration for promotion to higher levels of authority or given increased access to assets or data Association of Certified Fraud Examiners, Inc. 15 of 27

16 Due Diligence in Third-Party Relationships Many violations arise due to negligence on the part of third-party agents, such as contractors, vendors, or suppliers, rather than due to internal misconduct Association of Certified Fraud Examiners, Inc. 16 of 27

17 Due Diligence in Third-Party Relationships Review government watch lists. Review corporate registry records. Search PEP databases. Verify the third party s key employees. Search the third party s corporate records. Verify the third party s insurance. Verify any professional licenses. Confirm the third party s physical addresses Association of Certified Fraud Examiners, Inc. 17 of 27

18 Due Diligence in Third-Party Relationships Perform site visits. Evaluate the reputation of the third party. Conduct a media analysis. Interview the third party s employees. Review the entity s policies and procedures. Review the third party s financial data and banking information Association of Certified Fraud Examiners, Inc. 18 of 27

19 Using Third-Party Questionnaires Company profile and strategy Owners or stakeholders names Managers names Number of employees Bankers and lawyers names and contact information Years in existence Similar projects completed by the entity Information about the entity s customers Any involvement with government officials Any security or privacy audits performed internally 2018 Association of Certified Fraud Examiners, Inc. 19 of 27

20 Assessing the Third Party s Commitment to Compliance and Ethics Require the third party to have its own effective compliance and ethics program. Obtain and review the third party s code of conduct and other policies. Provide a copy of the organization s code of business ethics and conduct, and require the third party s agents to sign off on it. Ask if the third party has an internal audit department and what types of audits it undergoes Association of Certified Fraud Examiners, Inc. 20 of 27

21 Assessing the Third Party s Commitment to Compliance and Ethics Include a clause related to compliance and ethics in contracts with the third party. Include in contracts the requirement for the third party to report any misconduct that occurs in any work performed. Provide information on how to report suspected misconduct. Inform third parties that they will be liable for any unethical activity on their end Association of Certified Fraud Examiners, Inc. 21 of 27

22 Third-Party Due Diligence Red Flags Operations in a region with a history of corruption Inadequate financial resources Lack of qualifications or experience Lack of transparency in accounting records Poor record of performance Decentralized operations Recommendation by a government official Reputation for dishonesty Refusal to certify compliance with anti-corruption laws Personal or business ties to a foreign official Involvement in prior complaints or legal actions History of fraudulent conduct Undisclosed outside business interests Family ties with an employee of the purchasing entity Business model that does not make sense 2018 Association of Certified Fraud Examiners, Inc. 22 of 27

23 Due Diligence in Mergers and Acquisitions M&A transactions deal with the buying, selling, dividing, and combining of different companies and similar entities. An acquiring company can limit its liability by conducting M&A due diligence, rectifying any identified issues, and implementing compliance programs Association of Certified Fraud Examiners, Inc. 23 of 27

24 Due Diligence in Mergers and Acquisitions Conduct a risk assessment. Review the target company s compliance and ethics program. Assess the target company s ethical culture. Review any past incidents and current risks. Conduct background checks on key executives. Conduct background checks on key employees. Interview key executives. Identify the target company s jurisdictions Association of Certified Fraud Examiners, Inc. 24 of 27

25 Due Diligence in Mergers and Acquisitions Review the target company s business practices. Use data analytics to identify red flags. Review the target s third-party agreements. Include compliance representations in the M&A agreement. Monitor the target s business activities until merger or acquisition takes place. Take an appropriate response if risks or red flags are identified Association of Certified Fraud Examiners, Inc. 25 of 27