With businesses increasingly operating across international borders, Maryam Kennedy looks at how forensic accounting is keeping pace with the challenges of different regulatory regimes
How many languages can you speak? Are you able to travel with 24 hours’ notice? Which of the former Soviet states have you worked in? These three crucial questions neatly encapsulate the fundamental shift in the nature of forensic accounting assignments over the past 10 years.
The commercial world in which we operate has changed. Many clients are bigger than country states – the chief executive is more influential than the prime minister.
While business has grown, the world has shrunk. The past decade has seen a revolution in telecommunications and IT. The way in which we communicate, the speed of transfer of information, the sheer volume of information freely available and a BlackBerry-induced subculture of always being on call has opened up previously impenetrable markets to clients. Country boundaries are largely insignificant to the internet generation now entering the workforce.
That blurring of country boundaries to business and the seeming shrinkage of the world is, however, subject to the law of unintended consequences. While expansion overseas has undoubtedly benefited growth and profitability, it has exposed those businesses to even more diverse, complex and often conflicting regulatory regimes.
Although clients may operate in many countries, the technology that enables the free flow of information that underpins expansion – and which can become crucial electronic evidence – tends to coalesce around a small number of data centres. Data privacy risks abound when data crosses borders in the virtual world.
This is the environment in which we operate today. Clients are subject to disputes, regulatory reviews and investigations all over the globe. When faced with such challenges they look for forensic accounting advisers with an international outlook and who understand these problems – organisations with centres of excellence in traditional hubs such as the UK, US and Germany, but with local presences in their markets and the crucial element of local cultural awareness.
They look not just for accounting and financial advice, but a deep understanding of technology issues to enable the efficient and strategic review of dispiritingly voluminous electronic evidence.
As a forensic accountant, whereas 10 years ago I may have been stuck for weeks in a dusty office reviewing ledgers and paper files, I am now much more likely to be on a plane to Kazakhstan with a mixture of forensic accountants and forensic technology professionals. I will be met in Almaty by a domestic team that has already been talking with the client about the local legal and regulatory context for the investigation.
Thread of evidence
A typical example of our work today is a recent investigation into activities by the National Bank of Tajikistan. My team, comprising British, Russian and Iranian forensic accountants and investigators, worked in Dushanbe for three months. The previous governor of the bank had admitted concealing bank liabilities of $500m (£306.45m) from the International Monetary Fund to secure additional financing.
This funding was intended to benefit the cotton sector in the country. The investigation uncovered a complex web of cotton investors and their companies who had received funding, in contrast to the poverty-stricken cotton farmers. Following its conclusion, the Tajik president announced that the ‘debts’ owed by the farmers to the investors were to be cancelled.
This case was an example of the trend for increasing demand for forensic services from international donors and governments of developing countries. Donor funding is now usually tied to recipients demonstrating effective safeguards against corruption.
Experience in investigating global fraud and corruption can help in the design of practical programmes for safeguarding public funds. There is no shortage of advice on what to do to combat fraud and corruption in the public sector, but forensic accountants can provide answers on the ‘how’. To be practical and effective, this has to be suited to local context – what is sensible in one country can be impractical in another.
For the future, this trend of the globalisation of forensic services should continue as businesses expand and grow into new territories and the regulatory infrastructures in those territories struggle to develop at the same pace.
And by the way, my answer to the questions posed at the beginning of this article are: two; yes; and not quite all of them. Well, not yet anyway.
Maryam Kennedy is a partner in the fraud investigation and dispute services team at Ernst & Young