Insight

In corporate investigations, quick, decisive action is critical

Investigations Insider

Kenneth Koch

Kenneth Koch

Principal, Forensic, KPMG US

+1 404-614-8658

Investigating fraud and misconduct allegations at a large business is not the same as a battlefield rescue mission, but there are clear parallels.

Typically, a client or their outside counsel will engage our team when it learns there may have been wrongdoing. Our job, initially, is to evaluate the situation inside the organization. How serious is the alleged fraud? Is it limited to a handful of individuals, or is it broader and more systemic?

At the same time, we perform a “battlefield triage”, prioritizing the toughest challenges and taking immediate action to keep the situation from getting any worse – to “stop the bleeding.”

Like a rescue mission, we need to act quickly. We know our early actions can limit the damage and keep a problem from escalating to catastrophic levels. What we learn in the early days of an investigation will also inform legal strategy. Is this a matter that can be resolved quickly? Is this likely to develop into a larger and more protracted legal issue?

We also need to be prepared for a wide range of challenges, as an investigation can be triggered by anything from an allegation of sexual harassment, to a complex financial fraud scheme.

Gather intelligence quickly

Time is of the essence! When a client receives a letter from a regulator or other government agency announcing an investigation, they are already at a disadvantage and we need to move quickly. Our first step is to help the company and its legal counsel take the necessary steps to preserve information potentially related to the matter.This is not as simple as it sounds, as it requires an understanding of the company’s organization, communications, and technology infrastructure. What are the allegations? Which employees might be involved? How do employees communicate? Through what channels? Where in the IT infrastructure are these communications housed? For how long are these communications retained? In some organizations, for instance, emails are deleted after a certain period of time to conserve server capacity. In this case, we will help the company suspend any automatic data purging processes.

During an investigation, we work to establish a fact pattern based on the allegations, which requires a detailed understanding of the communications that have taken place among the people in question. Quite often the communication chain begins on a relatively open channel, like email, and as the issue becomes more sensitive it progresses to a more private channel like text message. As an issue becomes grave, and something suspicious might be developing, a final text might say something like, “Call me.”

Investigating issues triggered by pandemic

In recent months we have investigated a wide range of issues, many of which were undoubtedly triggered by the economic turmoil caused by the COVID-19 pandemic. One of the most common issues has been improper or illegal financial manipulation by high-ranking executives at an organization. We are also seeing a significant amount of bribery and corruption in “high-risk” jurisdictions, where enforcement is not as tough as it is in the U.S.

When investigating an allegation that someone might have manipulated earnings to make financial performance look better than it really is, we seek to understand an individual’s motivation. For this we often look to the elements of the Fraud Triangle:

  • What kind of pressure were they under? Are they living beyond their means or otherwise struggling financially?
  • Second, where was their opportunity to commit this fraud? Are there control weaknesses that can be exploited?
  • Third, did they try to rationalize their actions? They feel the company “owes” them or they are underappreciated/haven’t been rewarded for their hard work.

Examining all three elements, coupled with deep investigative experience, helps us to fully understand the root causes of the fraud and how to prevent it from happening again.

New technology has allowed us to analyze massive amounts of employee communications in a very short amount of time. What used to take weeks and months now takes days and can often give a strong indication of any merit to the allegations, who the players are, what the scheme or misconduct is, a timeline of the activity related to the allegations, the locations where the conduct took place, how the subjects were able to perpetrate the fraud, and the motivations behind their malfeasance. This new technology uses artificial intelligence and linguistics capabilities to learn about the data and return the most relevant information quickly with minimal human input. Typically, we can analyze the communications of 5-10 employees and provide a detailed briefing to the client within a week, including key supporting documents from our analysis. This helps shape the defense of the company and allows them to respond to allegations with confidence and conviction within a fraction of the time that it took for past matters.

We often utilize cross-functional investigative resources, including accountants, computer forensic specialists, data scientists, and a document review team to help clients prepare for examinations and respond to allegations. In many cases, we will work with outside counsel, special committees, and regulators regarding the facts and circumstances of the allegations, remediation, and corrective actions to minimize sanctions against the company.

When you bring our team into an investigation, it’s because there is a credible allegation of wrongdoing and immediate action needs to be taken. It’s not good news. But the agility and experience of our investigations team can help mitigate even the most difficult business issues.

Like a rescue team, we can help alleviate an immediate challenge. And when investigations are done properly and swiftly, sanctions against the company may be minimized, and the organization can get back to serving its stakeholders.

Takeaways:

  • Investigating a criminal allegation at a large company is akin to battlefield triage, where the mission is to stop the bleeding and organize a rescue plan.
  • Clients can rely on us to act quickly and efficiently, helping to mitigate issues related to the investigation and aiming to minimize sanctions against the company. 

On-Call Investigation Services

Fraud allegations require a swift response and skilled resources. When fraud occurs in a global setting, it is essential to perform a thorough investigation.

Fraud allegations require a swift response and skilled resources. When fraud occurs in a global setting, it is essential to perform a thorough investigation.