Fighting fraud and corruption in Czech companies

A large part of Sirshar Qureshi’s job is trying to prevent corruption and fraud. A partner at PricewaterhouseCoopers (PwC) since 2007, Qureshi has helped establish a compliance program and tries to give companies clear guidance on what is right or wrong.

Preventing corruption entails establishing and enforcing strong ethical policies, Qureshi says. These policies need to be explained, down to the level of whether or not the company allows people to get an occasional free lunch or a holiday present. Unclear guidelines on what can be considered a gift and what is considered a bribe are among the most common mistakes a company makes.

On a larger level, bad loans based on fraudulent documentation have become a very prominent problem. Companies also need to do more research in the hiring process, rather than taking people at their word. But Qureshi does see progress, as companies are now quite concerned over fraud and corruption when previously it was barely mentioned.

Companies are also increasingly concerned over recoveringmoney that was lost as a result of malfeasance, Qureshi says.

Qureshi joined PwC in 1997. He started with the forensic services team in London, focusing initially on dispute and tax investigation cases. In 2001, he moved to Prague to develop the Central and Eastern European practice.

* Q:What are the key issues for companies in Central Eastern European (CEE) area?

A: It depends on the country and the companies within that country and how they are reacting to the local environment in terms of how they do business. Companies have a difference in opinion in terms of ‘do you pay a bribe in order to win a contract in certain countries?’ Some companies may decide ‘yeah, why not?’ Some larger companies are implementing global rules and stricter criteria in terms of what you can do. But then the question becomes, ‘do they follow them?’ That is why you have to have strong corporate governance, a strong compliance programwithin the company that you say is important.

* Q: In your experience, how can a company prevent fraud and corruption?

A: It is fundamental to establish very strong anti-corruption policies and promote good ethical behavior within the organization. Also, to stop corruption, a company needs to have a good compliance program. I don’t think there is enough understanding of that. Companies always think that as long as they have internal controls, everything is fine. However, that is not everything. People need to be told what is right or wrong. Companies have to give themtraining, communicate with themand give themstrict items that say what is right and what is wrong in terms of whether you can accept a gift of thismuch and give a gift of thismuch. You can take a person out for lunch. You just need clear parameters.

* Q:Where do you draw the line?

A: I think you need to give clear guidance to your employees where the line is.
In terms of giving gifts for entertaining, you have to give a value and set the limits. If there are limits, keep to them because anything else will be interpreted in the wrong way. If you keep within the limit, you are clean. If you got above the limit, let employees know that we will discipline you personally because you broke the rule. If you don’t have the rule in place, the employee can say, ‘I didn’t know’ and he has a fair argument. Therefore, it is better to have strict rules about either not doing it or to control it with certain approvals in place.

* Q:What are themain problems of companies here?

A: There are lots of issues in subsidiaries as well as corruption issues and procurement fraud. The key issues currently are banks finding out that loans have gone bad because they were authorized based on fraudulent documentation. You can compare our investigative work to proactive work, helping companies prevent the situation. In the Czech Republic, a lot of companies are not afraid to do that. But compliance procedures, the cooperate governance—those structures are still not as good in the Czech Republic as they should be. If you have a small company andmake all the decisions, you decide what is right or wrong. The problems are for larger companies with tens of thousands employees. That is where a compliance program is needed. Also, the companies have to check out the employee before recruitment— references, education, criminal record, tax applications, etc. A full check is quite normal but many people are not doing it because they think that nobody will lie at job interviews in the Czech Republic, which is nonsense.

* Q: Are Czech applicants usually willing to cooperate?

A: Everything depends on the employee, the situation and if they have something to hide. I can say that the trades in this country, with regard to financial crime and corruption, function similar to any other country. The biggest misinterpretations aren’t from the junior person in the company, someone who will not inflict themost serious damage. It comes from the senior management, and the question is how is the company set up in order to deal with it? Sometimes they try to limit an investigation, just giving the information they want to give, not what you need. It is necessary to have a free investigation to achieve results. Czechs are not different than the rest of EU countries in this respect.

* Q: How would you describe ethical behavior in the Czech Republic?

A: Issues such as fraud and corruption, companies here are talking about them. Not voluntarily, but they are willing to change things. When it comes to addressing these matters, companies are more willing to make changes than before.

* Q: Are you gettingmore calls now?

A: Yes, there are more calls in terms of forensic audits. But the problem that we have here is that companies don’t understand what a forensic audit is. I think that companies feel that they don’t want to spendmoney unless they really have to. On the other hand, I think it is better to spend money to put the controls in place. Unfortunately, it costs themmuchmore to deal with the issue after something has gone wrong. They are in crisismode. They can’t control the press. Whereas doing the control is much cheaper in the first place. But they tend to learn the hard way.

* Q:What is your job exactly?

A:My key area is to carry out investigations for clients. When they see a problem, they invite us; give us the facts in order that we can decide what we do. The company is asking us to search for how they lost anymoney. Is there someone we need to recover the money from? Is there a control procedure that they aren’t working on? And so on. The other part of the investigation is to do proper interviews, document retention, reviewing e-mails, conducting a full investigation and then presenting the facts. We are collecting facts. It is required legally to chasemoney to find the evidence to recover the lost funds, take disciplinary action or start criminal proceedings.

* Q:Why did you decide to work in forensics?

A: To be an accountant is great but I felt like I need to do more with the numbers. It is something interesting to do and I spent two years at the department at Trade Industry, which is a government body in London, working in its company’s investigations branch. It is a different conceptworkingwith the government because they have a different way of doing things and also havemore power, including the ability to close down companies and qualified directors. Working for PricewaterhouseCoopers ismore in the commercial sense. It’s helping clients with investigationswhere you don’t have the same freedom because you have to go by all the laws, even more strictly, in fact.

* Q: Do you also advise the Czech government?

A:We’ve been in discussions on setting up good anti-corruption programs because of our experience from the UK. We have a common goal to make sure to take corruption seriously and to have a proper anticorruption compliance programin place for the government. It is generally a perception—whether it’s rights or wrong—that government officials are corrupt, but that is not necessarily the case. People here think that and will always think that. It is a problem. So the question is, how do we break this cycle?

* Q: Are there Czech laws backing up yours investigations?

A: In terms of the requirements on the directors, the law is clear because there were a number of cases where a company lostmoney and the board is required to try to recover it. In order to recover it, theymay decide to start criminal and civil proceedings. The systemworks. I found it very difficult for a boardmember to ignore that law. But what they can do is ignore the advice.

* Q: How do you find cooperation with law enforcement in the Czech Republic?

A:We have good cooperation. When we do an investigation with clients, and if they require submitting something for a criminal case, we would have a package investigation then. The issue comes in terms of the success rates of the investigation from the police side. One thing is starting the proceedings. The other is finishing it. In the past, the issue was the time it took to get investigations completed and to find recourses available to the police forces.

* Q: How would you describe the Czech judicial system?

A: They have their own challenges. It is very difficult for companies to deal with legal process and providing them with the evidence and wait for the courts tomake their decisions.
Fromthe company prospective, whether or not people go to jail is a key point. Rather, it’s that they shouldn’t have let it happen.

* Q:What have been your biggest successes in terms ofmoney recovery?

A:We recovered a lot ofmoney for one company, around €25 billion (Kč 704 billion), which I consider a success. But in this case the company had safeguards to protect itself against fraud. It had fidelity insurance to return the money if it was proven that it was a fraud and had to prove to themthat it would never happen again.

* Q: How long does an investigation usually take?

A: The longest I’ve been involved with took one year

* Q:Will the economic crisis increase corruption and fraud?

A: The perception of corruption is that it’s changing. But corruption is very difficult to find. ... When problems start with the exchange rate, or when companies can’t sell their products, the result is a loss of confidence. In those times, people are trying more carefully not to lose money.

By Sanja Kuprešak