In-Depth

Experts Advocate Multi-Purpose Approach to Fight Fraud

With the right investigative techniques, experts maintain, fraud-busters can connect the dots, uncover evidence, and combat fraud

• By Stephen Swoyer
• 08/19/2008

When it comes to fighting corporate fraud, there's a perception that fraud-busters are overmatched by technology- or process-savvy perpetrators adept at hiding evidence of their wrongdoing or (as was the case with French futures trader Jérôme Kerviel, (see http://www.esj.com/news/article.aspx?EditorialsID=3004) working within the context of existing controls to launch their exploits.

A new study from risk consultancy Kroll takes aim at that perception, advocating the use of multi-purpose teams that combine several business domains (including legal, accounting, technology, and, of course, fraud detection) to effectively combat fraud in the enterprise.

"Increasingly, the cases we deal with are cross-border and multi-disciplinary," said Blake Coppotelli, senior managing director with Kroll, in a statement. "Not considering one aspect or another risks jeopardizing success."

The good news is that today's attacks leave a lot more evidence behind and therefore should be much easier to detect than their predecessors, owing principally to expanded computer usage (as both a fraud-perpetrating mechanism and a means to facilitate communication with accomplices). With the right investigative techniques, Kroll experts maintain, an enterprise can connect the dots, uncover evidence, and combat fraud.

There's the all-important legal aspect: the success or failure of any fraud-busting effort frequently hinges on legal arcana, according to Kroll researchers. As a result, concepts such as privilege or discovery need to be taken into account during all such investigations. Moreover, U.S. laws are frequently applicable in foreign jurisdictions -- assuming, of course, the entity being investigated is a subsidiary of a U.S.-based firm.

"The application of U.S. law to foreign subsidiaries, increased litigation and legislation like the Foreign Corrupt Practices Act underscore the need for sound investigative methodology," Coppotelli comments.

Clever accounting isn't anything new, but fraudsters are increasingly clever, Kroll indicates.

"The skills of forensic accountants are essential both to uncovering the extent of certain frauds and to negotiating the regulatory challenges which they entail," said David Hess, managing director in Kroll's Forensic Accounting and Litigation Consulting practice, in a prepared release.

That's just the tip of the fraud-busting iceberg, according to Kroll, which cites a variety of other issues -- such as the importance of investigative diplomacy (i.e., the trick of managing constituencies, frequently involving different cultures or countries); the intricacies of gathering, safeguarding, and marshaling electronic evidence; the difficulty of tracing and recovering assets (another accounting-related problem); and the legal issues associated with preserving privileges and maintaining confidentialities.

Elsewhere, Kroll says, fraudbusters can expect to encounter management roadblocks -- particularly when an investigation seems to stall (owing to a lack of hard evidence) and managers simply want it to go away.