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Fraud investigation

Accounting fraud, the falsification of quality data and other similar incidents have become major issues for society. And if such an incident occurs at your company, society will be closely watching to see how you handle it.

To make sure that your response reflects positively on your company, you’ll need to provide a great deal of information to your stakeholders in an extremely short period of time. This information includes not only your findings but also detailed information on the root causes, potential damages and impacts, and your investigative approach and measures to prevent recurrence.

What’s more, this information needs to be disclosed not only to shareholders and business partners, but also to foreign institutional investors, authorities, the media and other entities. An appropriate initial response can help keep the indirect economic impact of the fraud (such as the impact on your stock price, penalties imposed by regulatory authorities, and damage to your corporate credibility and social reputation) from greatly exceeding the direct financial burden.

Our forensic services team has extensive experience in helping clients through disruptive events both inside and outside Japan. We provide support tailored to the details and context of each individual case, including support for clarifying the facts and formulating subsequent remedial and preventive measures.

Our fraud investigation services include

  • accounting fraud investigations,
  • product quality and data falsification investigations,
  • asset misappropriation and breach of trust investigations,
  • bribery and corruption investigations and
  • fraud risk management.

PwC’s approaches

Accounting fraud investigations

Inflated and fictitious sales. Window dressing. Round-trip and unauthorized off-the-book transactions. Fraudulent accounting methods vary widely and are becoming more sophisticated and complex, making them difficult to prevent and detect. The number of cases occurring at overseas subsidiaries is also on the rise.

Our team has extensive knowledge and experience in identifying accounting fraud through combinations of document reviews, forensic data analysis, interviews with concerned parties (including business partners) and digital forensics.

We can help you investigate

  • intentional deviations from standard sales recording practices,
  • advance recording of sales or deferral of expenses,
  • manipulation of sales and sales costs through inappropriate application of the percentage-of-completion method,
  • round-trip transactions,
  • manipulation of production costs to increase profits,
  • falsification of inventory quality and/or quantity,
  • off-book assets and transactions
  • inappropriate disclosure of related-party transactions,
  • diversion of assets and inappropriate financial reporting at overseas subsidiaries, and more.

When a company discovers significant accounting fraud, they often form a third-party or otherwise independent investigation committee. To efficiently and effectively conduct investigations and to provide transparency and objectivity to the investigation results, many companies include consultants on these committees. Alongside lawyers, accountants and academics, these consultants are entrusted with collecting a large amount of information. Our forensic services practice provides comprehensive support for a range of fraud investigations. We can help you determine the policies and scope of the investigation, collect and preserve evidence, use digital forensics, analyse the root causes, develop disclosure policies, report to the regulatory authorities, and formulate remedial and preventive measures.

 

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Product quality and data falsification investigations

Product quality and trustworthiness are important parts of your brand. But incidents involving product quality fraud and data falsification can also lead to major public criticism. Inadequate quality inspection methodologies for finished products, violations of emission standards, falsification of measurement data, and even sustainability fraud related to ‘eco-friendly’ products claiming to use recycled paper or plastic—we’ve seen all of these and more in recent years. And if companies don’t respond appropriately when problems are discovered, it can significantly damage their sales or brand image. As ESG (environment, society and governance) investments increase, non-financial information becomes more and more important for investors' decision-making—but also brings an increased risk that such information might be tampered with. If a problem is detected, it is important to quickly develop an initial response, as well as remedial measures. Our forensic services practice, led by a team of professionals who are knowledgeable and experienced in product quality and data falsification investigations, frequently supports companies in responding to fraud allegations.

We can help you investigate

  • product quality-related fraud,
  • recall standards,
  • fraudulent labelling of raw materials in sales products,
  • falsification of product inspection data and more.

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Asset misappropriation and breach of trust investigations

Misappropriation of cash deposits. Collusion with business partners to receive kickbacks. Financial criminals use a wide range of methods to illegally divert profits from companies. In divisions, branches, subsidiaries, and other organizations whose internal controls are insufficient, or where internal controls have become a mere formality, these crimes could go undetected for a long period of time, resulting in serious problems.

In many instances, companies ultimately entrust the police and other public justice agencies with the investigation of criminal activity such as misappropriation of assets and breaches of trust. To fulfil their accountability to shareholders, investors and other stakeholders in a timely manner, these companies must promptly ascertain the facts, determine the impact on their financial statements, analyse the root causes, and formulate measures to remediate and prevent recurrence.

We can help you investigate

  • kickbacks and rebates from manufacturers, suppliers and service providers;
  • misappropriation of company assets and abuse of company expenses;
  • diversion of corporate assets to sole proprietorships;
  • conflicts of interest and more.

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Bribery and corruption investigations

Corruption is a risk inherent to global companies, and anti-corruption regulations are becoming stricter throughout the world. Based on PwC’s global investigative methodologies and knowledge related to laws such as the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act, our forensic services practice conducts fact-finding investigations to help you mitigate issues before they develop into serious problems.

For other services related to bribery, corruption and competition law, please refer to the following links.

Bribery, corruption and competition law services

We can help you investigate

  • allegations of corruption at your overseas subsidiaries,
  • suspicious payments to public enterprises (public hospitals, schools etc.) and officials, and more.

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Fraud risk management

As you expand your operations overseas, the management of subsidiaries, branches and affiliates becomes more complex. It takes time, effort and money to investigate fraud, and the process of reporting to authorities and disclosing information to shareholders and other stakeholders can disrupt your operations.

Establishing an adequate system to prevent and detect fraud and mitigating the consequences when fraud occurs are significant challenges. And depending on the scope and nature of an incident, you may also need to establish a variety of response measures, including measures for identifying stakeholders during the initial response.

Our forensic services practice provides thorough support to complex global organizations for the prevention and detection of fraud and for measures to prevent recurrence. This support includes identifying and assessing risks at each location, establishing fraud prevention programs and monitoring these programs. We also advise our clients on the identification and assessment of gaps in their current anti-fraud measures and conduct training for staff members.

 

 

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Our team

Takuei Maruyama

Partner, PricewaterhouseCoopers Aarata LLC, PwC Business Assurance LLC

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Mihoko Nasu

Partner, PwC Advisory LLC

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Akiko Hirao

Director, PwC Advisory LLC

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Shunsuke Ueno

Director, PwC Advisory LLC

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Ryusuke Nara

Director, PwC Advisory LLC

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