Allegations of white collar crime must be investigated


THE FIRST half of 2020 saw tumbling profits at many of Malaysia’s public companies as the Covid-19 pandemic wreaked havoc on the global economy. As financial accounts increasingly turn red, more companies will likely be forced to make moves to restructure debt repayments, recaptalise or cut operating costs as they struggle to retain cash.

When they do, these companies will need to place their financial accounts, transactions and operations under the magnifying glass and have them scrutinised like never before. For some, this heightened attention may uncover cases of white-collar crime – accounting fraud, bribery, asset misappropriation or procurement fraud – and breaches of accounting regulations that had until then been hidden from view.

The game is afoot

How a company’s board of directors first responds to allegations of corporate fraud – and importantly how it is perceived to respond – is vitally important and in some cases can even help prevent escalation into a major public crisis, with significant implications for shareholder value.

The launch of a thorough independent investigation to uncover the facts is often be a key component of a fraud response, bringing to the fore the financial detectives and forensic technologists that are called upon to follow the clues in these typically complex cases.

The benefits of conducting a thorough independent investigation into allegations of serious fraud are manifold.

First, it will help to ascertain the extent of the wrongdoing and quantify the financial losses incurred. Second, it will identify the employees responsible and importantly whether management was involved. Third it will help to pinpoint governance, oversight and procedural failings that enabled the fraud to take place in the first place and shape remedial measures to prevent similar fraud happening again.

And finally, and perhaps most importantly, it will demonstrate that the company’s leadership is taking the issue seriously, has zero-tolerance for unethical conduct and is acting in good faith to protect the interests of shareholders and other stakeholders.

The financial detectives

The appointment of an outside counsel to lead an investigation as part of an independent ‘Investigative Committee’ is good practice. Using the analogy of a Sherlock Holmes story, the appointed law firm can be thought of as Scotland Yard, leading and coordinating the investigation and calling in support from independent experts with specialist skills, like Holmes and Watson, to follow the clues in complex cases.

In the case of corporate fraud, our Holmes and Watson are expert forensic accountants and forensic technologists. The forensic accountant will analyse a company’s financial records and transactions in search of evidence and conduct interviews with suspected employees to determine the extent of the fraud and the losses incurred. While forensic technologists will secure and analyse the electronic data from laptops, mobile phones and servers to help understand how the fraud was conducted and build the case against those involved.

Managing the disclosure

As an investigation progresses and the smoke clears, it may be necessary to begin communicating with various stakeholders – the regulatory authorities, shareholders, creditors, clients and employees, to name a few.

The regulatory authorities could contact the company at any point once allegations emerge and a company should be prepared to respond to queries promptly and cooperate fully with any investigation they are undertaking.

Shareholders and creditors will be concerned about the quantum of the fraud, its impact on financial performance and cash flow and how the company will remedy deficiencies in corporate governance, compliance policies and procedures that the misconduct has exposed. If the losses due to the fraud are potentially material a company should be prepared to make timely disclosures to the market as details are confirmed.

Once a fraud allegation has been disclosed, key customers and clients should be contacted to reassure them that the company and its leadership are committed to ethical business practices and that quality and continuity of service will not be impacted. Depending on the scale of the misconduct, employees may also need to be engaged to rebuild morale and address concerns over job security, the conduct of co-workers and even confidence in management.

Throughout, leadership should reaffirm its zero-tolerance approach to unethical behaviour and commitment to maintaining the highest standards regarding integrity and ethical business practices. If appropriate, highlighting the initiation of disciplinary or legal action against the perpetrators provides an important proof point of leadership’s tough stance on unethical behaviour among employees.

While managing the traditional media clearly remains important, social media is becoming increasingly significant and can quickly turn a corporate fraud allegation into a full-blown public crisis. Monitoring the online conversation and, if necessary, acting to correct misinformation or counter negative commentary with positive content can prove a vital component of the crisis response.

As more of Malaysia’s public companies take steps to stem the flow of red ink caused by the ongoing Covid-19 pandemic, some are likely to uncover previously hidden incidents of financial misconduct. When this occurs, being seen to address the issue head-on through an independent investigation will send a strong message about a company’s zero-tolerance of unethical behaviour and can even provide a platform for the board to reaffirm its commitment to good corporate governance and the protection of shareholder value.

This article was contributed by FTI Consulting managing directors Malcolm Robertson and Ben Ee. The views expressed herein are those of the authors and not necessarily the views of FTI Consulting, Inc, its management, its subsidiaries, its affiliates, or its other professionals.



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