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Forensic due diligence

PRE-ACQUISITION STAGE

Fraud risks are often underestimated in financial due diligence. A host of business risk areas should be addressed in order to minimize any potential loss in value to the acquirer after the transaction. Each such acquisition runs the risk of entering into an unexpected and potentially harmful situation which may be revealed only much later. Examples of these may include the following:

  • Fraud
  • Bribery and corruption
  • Money laundering
  • Related party transactions/conflicts of interest
  • Restrictions on trade and export
  • Regulatory actions

If some of these apply, the acquirer can be exposed to reduced revenues, increased costs, reputation damage, competitor or shareholder litigation or even regulatory sanctions, including criminal prosecution.

In addition to the financial due diligence the Forensic due diligence’s primary objective is to provide the acquirer with additional information to enable an educated decision to be made and/or to mitigate such risks through early review of potentially inappropriate or unethical business practices by the target.

Conducting Forensic due diligence requires global knowledge of fraud and corruption schemes and trends together with highly specialized forensic investigative and industry experience.

The key features of Forensic due diligence may include:

  • Anti-Corruption Procedures - The objective here is to enable the acquirer to evaluate the potential future loss in value from an acquisition or investment which may arise from inappropriate or illegal business practices by the target.
  • Forensic Technology and Discovery Services - In our forensic technology team we can process wide range of electronic data of significant volumes for an extended period in different analytical tools. Data analytics techniques are more effective than random sampling of transactions only. The special forensic tests with focus on review of the data room documentation (general ledger, vendor master file, customer master file, journal entries, payments etc.)
  • Business Intelligence Services - Fraudsters can be found in any stakeholder group: managers, employees, suppliers, customers or other third parties. Our intelligence specialists are able to obtain information relating to a subject’s (both entity and personal) background and reputation. We conduct extensive online research for gaining reliable information concerning the reputation of the people and organizations involved using subscriber and internet databases, as well as interviews with relevant subjects. Our output of the gathered information is supported by a graphic visualization of the relevant networks, stakeholder’s undisclosed relationships, if any, etc. This information helps clients to make decisions about the individuals/entities they are negotiating or conducting business with.

We can support the client with forensic assistance not only during the pre-acquisition but also during the post-acquisition stage.

POST-ACQUISITION STAGE

We can support the acquirer during the lead-in and at any later stage through:

  • Identification of any potential fraudulent conduct that has occurred or is occurring in the acquired entity
  • An assessment of the risk of these potential fraudulent events and making recommendations for their mitigation
  • A detailed review of potential regulatory (e.g. FCPA, UK Bribery A ct) violations that ma y include, but is not limited to, a detailed audit trail review including contracts, transactions, payments.

As per the results, we can design and implement an effective compliance program tailored to fit the particular organization which can help to protect against the risk of anti-corruption legislation violations. This will include a system and process review, a review and assessment of existing corruption and fraud policies, procedures and controls, assisting with designing a best practice compliance procedures and, during the final phase, tailored compliance training.

If you are interested in learning more about our services and experience in forensic due diligence, please contact us. 


Daniel Bican Executive Director, Fraud Investigation and Dispute Services
Daniel Bican

+420 225 335 849, daniel.bican@cz.ey.com

Patrik Mikolaj Manager
Patrik Mikolaj

+421 2 3333 9388, patrik.mikolaj@sk.ey.com