By Sean K. Boyle and Alexandra Luchenko, Blake, Cassels & Graydon LLP
Corporate fraud can have a significant impact on a company’s profitability, growth, development and reputation. Below are eight practical steps to prevent and respond to corporate fraud at home and abroad.
1. Assess risk
A risk assessment is the first step towards implementation of a robust program preventing fraud. Such an assessment involves identifying the risks faced by the target corporation by identifying potential scenarios where fraud could occur undetected.
2. Implement policy
The cornerstone of any compliance program is a clear and concise policy prohibiting fraud. Such a policy requires a system for seeking guidance and reporting violations. Training must be provided for all of the corporation’s constituents to ensure the corporation fosters a culture of compliance. As an additional compliance measure, a company may also wish to train third parties as appropriate. Records should be kept of all training.
3. Provide leadership
One of the ultimate goals of any such program is to create a top-down attitude of compliance. Proper “tone from the top” is fundamental to successful implementation. This can be accomplished through messages from the board and senior management encouraging compliance as well as through comparable sanctions for transgressions regardless of position.
4. Introduce accounting controls
Internal accounting controls are an important component of preventing corporate fraud. Controls aimed at identifying and preventing issues that may arise, such as controls around petty cash, expenses and payments to third parties, should be developed and implemented. Typically, an accounting assessment will be performed as an initial step aimed at identifying potential areas of control risks, with accounting controls then implemented to address those risk areas.
5. Revisit policy regularly
To ensure efficacy, any preventive program must be periodically assessed. The goal is to develop and implement mechanisms to test for compliance weaknesses and detect any issues. This periodic testing should be performed under the direction of legal counsel to maintain privilege.
6. Prevent corruption
The global fight against corruption is on. Over the last several years, the U.S. has been extremely aggressive in enforcing anti-corruption legislation (the Foreign Corrupt Practices Act), assessing several billion dollars in penalties. Canada has become increasingly active in enforcing its own anti-corruption legislation, the Corruption of Foreign Public Officials Act. Corporations with operations abroad must be vigilant in their commitment to fight corruption and ensure that policies are culturally appropriate and translated into local languages.
7. Understand responsibilities
Depending on your role in the organization, you may owe specific duties. Every director of a corporation has a duty to act loyally and in the best interests of the corporation. It must be noted that certain individual acts undertaken on behalf of a corporation can give rise to personal liability in specific circumstances. Consider whether an insurer must be notified and provide such notification in a timely manner.
8. Consider investigating internally and be prepared to interact with government agencies
Corporations that suspect there may have been a lapse of duty or consequential harmful impact may wish to be proactive and move to investigate the matter of their own accord. Such investigations should be properly structured so as to attract solicitor-client privilege or litigation privilege.
Obtaining immediate legal advice is crucial in the face of inquiries from government agencies. In some cases, compliance with investigations is mandatory, but that may not always be the case. Legal counsel can assist in helping you understand your obligations and to respond as required.
Video: Sean Boyle discusses responding to corporate fraud at home and abroad:
To learn more about the evolving threat of fraud, register today for BIV’s Business Excellence Series: Corporate Fraud breakfast event.
