Corporate fraud has become one of the key issues in modern business and, accordingly, has attracted increasing interest from regulatory bodies across both developed and emerging markets. Technological advancements and the continuing globalisation of business are helping to facilitate white-collar crime.

With corporate fraud more prevalent in certain markets, lawmakers are taking action. Since the financial crisis, there has been a marked increase in the number of regulations put forward to combat the problem. However, there also needs to be a greater focus on internal efforts to reduce impropriety. When operating in the emerging markets in particular, many firms fail to tailor their due diligence processes.

Of course, corporate fraud is not exclusive to emerging markets; it is a major issue in the developed world – and Canada is no exception. According to a report from EY, one in five executives thinks bribery and corruption is widespread throughout the Canadian business world. For David Debenham, co-chair of the Supreme Court of Canada practice group at McMillan LLP, much of the fault for the increase in fraudulent activity is due to a substandard response to potentially fraudulent activity. “Allegations of fraud are too often dismissed as irregularities or misperceptions because of the way suspicions of fraud are handled,” he says. “There are several key points to make in addressing the problem. From an investigative point of view, the presumption is fraud unless an innocent explanation can be demonstrated, and not the other way around – as it is in a forensic setting. This means that evidence is not to be taken at face value, and must be thoroughly corroborated. Second, all incidents must be logged and investigated. What looks like an isolated incident may be part of a larger pattern. Third, there has to be internal and external oversight. Internal auditors can be co-opted by the corporate culture, and therefore they cannot see what is obvious to outside eyes – the last creature to see water would be a fish. External fraud auditors must be involved for that distant, detached view. Finally, there has to be a compliance officer and an audit committee to review investigative results and ensure future audits are planned with past investigative results in mind.”

Jan-Mar 2015 Issue

Richard Summerfield