Having dedicated his career to fraud prevention, protective integrity, security and compliance, Zafar Anjum is a distinguished and highly respected professional in his field. As Group Chief Executive Officer at Corporate Research and Investigations Limited, he uses his extensive knowledge and expertise in creating stable and secure networks across challenging global markets. For organisations needing comprehensive project management, security, safeguard testing, background investigations and real-time compliance applications, Anjum is the assurance expert of choice for industry professionals.
Q: To what extent have you seen an increase in corporate fraud in recent years? What are some of the common themes and underlying causes?
Anjum: Fraud always seems to be increasing. No matter how sophisticated our attempts to prevent it become, perpetrators are always adapting with new methods. According to the 2020 Association of Certified Fraud Examiners (ACFE) Report to the nations, asset misappropriation is the leading type of occupational fraud. It makes up 86% of fraud cases and causes a median loss of $100,000. On the other spectrum, financial statement fraud schemes are the least common (10% of cases) but are the most costly, causing a median loss of $954,000. A typical fraud case can last 14 months before detection and cause a loss of $8,300 per month – a whopping 5% of an organisations revenue is lost to fraud each year. There are various factors at play here, but it starts with ‘tone at the top’. Basically, corporate culture often sets the tone for how strict or lax an organisation is when preventing or detecting fraud. Combine a lax approach with a country or jurisdiction where corruption is still prevalent, even considered ‘business as usual, and there will likely be fraud.
Q: Could you outline the benefits of using background investigations to reduce potential fraud? Under what circumstances is it prudent to undertake a background investigation?
Anjum: It should be a priority to conduct thorough background investigations when engaging in a merger or acquisition, an initial public offering (IPO), engaging suppliers, contractors or new clients – your client relationships can affect your organisation’s reputation and your ability – just to name a few situations. This can help you avoid becoming entangled with third parties that have hidden fraud and other legal issues. It will also make you aware of a potential partner who has a credit risk, has claimed bankruptcy or is faced with debtor filings, for example. In one case, a company was seeking to engage a new supplier for medical supplies and equipment. A background investigation revealed that the warehouse’s physical location – claimed by this ‘supplier’ did not exist. The company’s principal had previously been charged with ‘criminal breach of trust’. Three other civil damages claims against the principal were discovered, with millions claimed in liabilities.
Q: What are some of the best practice approaches to conducting a background investigation?
Anjum: One of the most important aspects of thorough background investigations is having a ‘boots on the ground approach. Online database searches can only take you so far. When conducting due diligence on entities or individuals, red flags that pop up often warrant further checking before they can be truly weighed as part of the decision process. For example, if you are considering partnering with another company and they provide information for their physical location, do you have agents who can visit that location to make sure it is legitimate? Investigations sometimes discover that purported ‘headquarters’ is actually an abandoned home or vacant lot. Also, if certain credentials are claimed, you need to make phone calls or possibly a visit to the school or accrediting bodies to verify them. These are the important details that help you established facts that help guide your decisions.
Q: What kinds of legal or regulatory issues might complicate a background investigation?
Anjum: Privacy laws are probably the most important issue, and they need to be carefully understood and followed for every jurisdiction. In the UK, for example, the pandemic has created new data privacy issues, but prudent organisations are constantly evaluating their data protection strategies under the General Data Protection Regulation (GDPR). When it comes to background investigations, similar privacy considerations apply. You might want to check an individuals’ financial or credit history – relevant information if they own a business you seek to partner with or acquire, or if you are considering them for a high-level position at your organisation. Accessing such information is permitted in some jurisdictions and restricted by law in others. The last thing you want is to end up in court for violating someone’s privacy. It is best to engage a professional due diligence background screening firm. They will be trained and up-to-date on the laws governing your background investigations, plus they will have access to resources that most companies do not have.
Q: To what extent are background investigations more challenging in a cross-border or multi-jurisdictional context? How can these additional challenges be overcome or avoided?
Anjum: This goes back to the importance of having investigators in various locations, your ‘boots on the ground’, in your approach to due diligence. The world is much smaller these days as organisations seek to expand across international borders. And the COVID-19 is teaching leaders invaluable lessons in business efficiencies and future strategy. This can lead to obvious challenges – both with following the laws and regulations in various jurisdictions and overcoming language and cultural barriers. That is why it is important to have access to locally-based agents – including certified fraud examiners and similarly credentialed professionals – to help with your checks, whether investigating a potential third-party partner or an individual being considered for employment. Another advantage is to have a set, written policy and process for conducting background investigations that you can reference and rely upon when undertaking key business decisions. In this way, your organisation is less susceptible to someone convincing you to bypass proper due diligence simply because it might seem logistically difficult to conduct an overseas investigation.
Q: Once the background investigation results are collated, what are the key points to analyse?
Anjum: If red flags are uncovered, the best way to proceed is to investigate further to understand discrepancies. For example, suppose you are conducting background screening on a potential employee, and something comes up in their criminal record, rather than eliminating them from consideration. In that case, you should ensure that there was not an error in your background check, investigate the discrepancy and gather all relevant information and ask the person to explain what you found and why they did not disclose it. They might have an explanation that affects your decision process. In other words, do not overlook potential talent. According to Nacro, more than 11 million people in the UK have a criminal record – that’s 1 in 3 men – however, just over half of these had been convicted on only one occasion, and 85% were convicted before they were 30 years old. Not all of those have a prison record, however. Most convictions are for motoring offences, such as speeding or unpaid tickets.
Q: What essential advice would you offer to companies on developing internal policies and processes to combat fraud? should intensive background investigations form part of their standard procedures?
Anjum: Intensive background investigations should be a part of an organisation’s standard procedures. It should be part of a greater risk management plan, be set forth as written policy that owners and director approve, and be reviewed and understood by management and other relevant personnel. Engage risk management professionals when developing your policies and procedures. They can help tailor a plan based o your organisation. Key questions to address should include; who will implement the plan, how an investigation is conducted, who evaluates and reports the results, and so on. Sometimes organisations put forth a thorough, excellent programme for background investigations and then, six months or a year later, nobody is following it. The key to success is following through with it and making sure your entire organisation understands the process and why it is so important. The security of your company depends on effective risk management.
The security of your company depends on effective risk management
Background investigations are critical to any company’s success because working with qualified, honest and hard-working employees and other businesses is an integral part of thriving in the business community. What you don’t know can hurt you, and the simple act of one bad decision can result in an unprecedented loss for your company.
From vendor and third-party screening to employment screening, CRI Group recommends background investigations as critical proactive measures to help keep your business safe. An effective background screening investigation will help screen for bad apples that can cause havoc down the road. Because we maintain a diverse talent base comprised of multilingual and multi-cultural professionals, CRI can traverse obstacles that often impede international background investigations. That’s why we are frequently contracted by our competitors to conduct background investigations in geographic regions not serviced or accessible by larger investigative firms.
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