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The Pinkertons of the economy

The Pinkertons of the economy

Olivia Allison, the leader of Forensic Practice of KPMG in Ukraine, tells how consultants run investigations, why employees commit fraud, and how a forensic practice can help businesses.



Olivia Allison

Partner, Head of Forensic & Risk Consulting

KPMG in Ukraine


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What are the main factors of fraud in large companies?

Frauds occur in every country, and they are unfortunately a reality for every company. Of course, the key component of fraud is the human factor. If an employee realizes that he or she has the opportunity to implement fraud, and if they have a reason (incentive) to do so, and can justify it – then we have the classic “fraud triangle”. Usually, for example, people may justify a fraud because they think no one is watching them, and they believe that they deserve higher remuneration than what they receive.
In our experience, people working in Ukraine and in post-Soviet countries believe – often, correctly – that their employers have much fewer controls than companies operating in the UK or the USA. And it is this lack of control that enables people to abuse this. In fact, this creates opportunities for fraud. As Forensic practitioners, our task is to help companies minimize the opportunities for fraud.

Does this help fight corruption as well?

Of course. But of course fighting corruption is a task that must also be addressed at the national, local and political levels. Mentality and cultural specifics are critical, for example. At the same time, private business also have a responsibility to address their role in improving the business environment and preventing corruption.

How many companies have asked KPMG to conduct expert assessments to date?

Officially, our forensic practice in Ukraine was established only one year ago. At the moment, many local and international companies are interested in fraud and corruption prevention services.

Other companies work with us to help meet foreign investors’ expectations of compliance and risk management. We see increasingly that investors are not interested in just buying assets and earning profits, but they of course also need to be sure their investments are secure, and that they are compliant with international laws. There are many forensic questions related to this. For example, a foreign company may ask: What is the reputation of this Ukrainian company that I want to buy? What is its position on the market? What are the potential corruption risks in a country like Ukraine, and how will I manage them?

Finally, we see that it is also critical for us to help companies not only in "emergency" situations, where they are investigating something that’s gone wrong, but also to help them build proactive systems. For example, next year we plan to launch a Forensic Academy, which will allow companies to send 1-2 employees for training – a more cost-efficient option for local Ukrainian companies who cannot afford bespoke training but still want to develop compliance functions. The companies will gain knowledge that will help them identify and address fraud and corruption risks themselves – so we believe that we are helping develop Ukrainian businesses overall.

How does forensic work in Ukraine? What do you use in the process of your investigations?

We use a globally consistent investigation methodology, so what clients in Ukraine get is the same that they would get from any other KPMG Forensic practice. Usually, we start the investigation by collecting information about the company, studying the policies and procedures, analyzing financial data, conducting interviews with company employees, in some cases analyzing the contents of e-mails of employees or corporate mobile phones, depending on the circumstances of the case. Sometimes we also check potential relationships between employees and counterparties or contractors – for example, using data in the registers of public information - both Ukrainian and international.

Fraud investigations are often about obvious facts. For example, if you have a large company, perhaps it buys a large volume of office supplies. We’ve seen cases where even these basic items were purchased using schemes – for example, the head of procurement’s family member owned the company that supplied the office supplies. This is a conflict of interest that could have been avoided if due diligence was carried out. We often see cases like this, where there are significant losses to a company but there are clear steps to prevent it in the future.

What is the most difficult part of your work in this region?

It is easy to obtain information in Ukraine: there are open registries, social networks and a lot of information is available in the public domain. Of course, there are some difficulties with obtaining information on private entrepreneurs and self-employed individuals. Sometimes there are also problems caused by discrepancies between public data and the situation on the ground – for example, the registered owner may not be the person truly controlling it. This can sometimes make investigations more difficult. But often there are trails and traces that we can follow, and we usually have many findings and recommendations in cases we do in this region.

In what circumstances do businesses seek forensic services – for example, is it useful in the case of an M&A?

Yes, they come to see us in transactions. For example, we would recommend a forensic analysis or due diligence if an investor or company is conducting an M&A transaction.
We are also often approached with requests to analyze corporate procurement processes. Relatively recently, we also began a "hot line" outsourcing service, which will allow local companies to implement an independent ethics hotline where calls are taken by trained Forensic professionals. This will help companies to identify risks and address them.

What is the role of corporate compliance functions, and how does it relate to forensic?

We often work with both compliance and security departments – both have important roles in companies in Ukraine. Many times, forensic issues are identified because of internal or external whistleblowers or other reports. Even with internal controls, potential fraudsters can be very inventive, and it is important for companies to give their suppliers, the public and their employees an opportunity to report it. Of course, if this is reported just to the security department, people usually do not trust that their information will be handled responsibly – people think they may be fired or punished afterwards. Therefore, we believe that an important element of compliance is to have an independent process for reporting issues. Based on our experience, we recommend that this service be outsourced.

What makes a company more susceptible to fraud?

A company's internal culture is hugely important, as are the business culture in the country or region. By this, I mean that in some cultures there is a tolerant attitude to certain kinds of abuse. At the same time, people are living in an economic reality of their own – so if salaries are low or not paid consistently, they are more likely to seek other forms of income.

Nonetheless, we believe that it lowers the risk if the management of a company has a "zero tolerance" approach to any kind of abuse, and if that is integrated into corporate culture. It is important for the company's management to actively lead this cultural aspect, including by supporting and conducting fair investigations of abuses and punishing perpetrators. The desire of management to cover up cases like this may make the company more vulnerable in the future.

Do you work with small and medium-size businesses? Do they have any specific requirements?

Yes, we are here to work with companies across the economic spectrum in Ukraine. It is very important for us to help companies rebuild their internal processes in such a way that they can develop capacity to deal with fraud and corruption using their internal teams in many cases.
In these cases, it is important to understand what is reasonable to expect from even small companies, in terms of compliance and risk management. We are aware that smaller companies may have more limited resources for consultant support. Therefore, currently we have more affordable, standardized products, such as the Academy and diagnostics, that may be of interest to SMEs.

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