Using data to detect and de-conflict your interests
- Ethics, Compliance and Governance
- Investigations, Litigation and Forensics
- Forensic Data Analytics
Can using data detect and de-conflict your interests?
Conflicts of interest remain a key risk for management teams across industries and the globe. Concerns around whether third parties have close and undisclosed connections with their employees remains real and a gateway to corruption and fraud.
The Organisation for Economic Co-operation and Development defines conflict of interest as when an “individual or a corporation (either private or governmental) is in a position to exploit their own professional or official capacity in some way for personal or corporate benefit.” However, having a conflict of interest does not always lead to corruption and ensuring these relationships are identified and adequately managed is key.
One of the greatest difficulties faced by a company is detecting and investigating a conflict of interest matter. These are usually identified by a whistleblower. Due to the confidential nature of the allegations, and to avoid unnecessary alarm bells should the allegations turn out to be false, companies are recommended to undertake covert investigations to determine the legitimacy of claims. Apart from undertaking corporate record research on the alleged companies, what can a company do to investigate these claims?
We advocate a two-tiered approach to investigating conflicts of interests that helps you to better understand your third parties.
1. Understand who your third parties are through social network analysis
Social network analysis is an efficient and thorough tool to identify unknown relationships. Information is captured about many areas of an organisation. Details such as telephone numbers, addresses, company registration numbers, bank account numbers and contact emails can be extracted from a number of sources, such as employee and supplier lists, purchase orders and banking information. Fusing and analysing these together can identify previously undisclosed social networks and links.
In one of our investigations, we used social network analysis and identified seven different companies sharing the same contact email address and telephone number. The companies all provided the same service and invoiced for the same amount, which were all approved by the same staff. Further investigation found, despite having different directors, the seven companies listed the same sales manager and their invoices lacked appropriate description – all signs of fraudulent payments or money laundering.
However, social network analysis is limited by the quantity and quality of data maintained by the company. The more information the company records in its system, the better the results. Additionally, ensuring data is recorded consistently and completely will make the analysis easier and allow a comprehensive understanding of who your third parties are.
2. Understanding how third parties act through supplier analysis
As mentioned above, having a conflict of interest does not necessarily equate to misconduct. Instead, it is the response and change in behaviour of these individuals and companies that need to be monitored. Analysing the use and payment suppliers’ patterns, through statistical and red flag analytics, can be a useful indicator of conflict of interest misconduct.
Sudden increases in use of a supplier can be a sign of preferential treatment to a related party. This is particularly of concern when the company redirects business from established organisations to smaller companies, often under the guise of “price competitiveness” or if services provided by the related party are not actually necessary. Further investigations would be required on these suppliers to determine whether usual vetting and reference checks were undertaken (often not, if the service was provided urgently) and assess the ability of the company to properly undertake the work.
Other anomalies, such as duplicate invoice numbers, split payments and inconsistencies in the payment pattern of a supplier, can also indicate questionable behaviour, suggesting controls override or payment of false invoices to the related party.
Combining an understanding of who your third parties are and how they behave is vital to uncovering conflicts of interest misconduct and this can be best done through data.
- Joanna Ng, Senior Consultant