FORENSIC

ADVISORY

The Role of Auditors in Fighting CorruptionAlexander Nagy, Director12 November 2008

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Introduction

Aim of the presentation: share out some thoughts regarding the role of auditors in fighting corruption

Following key roles identified:

Audit of financial statements

Auditor as an advisor

Auditor as a citizen

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Audit of Financial Statements

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Audit of financial statements

Auditors’ responsibilities are set out in Act no. 254/2000 Coll., on Auditors, as amendedFurther regulation set by local and international standardsResponsibilities include inter alia audit of financial statementsDuties of auditors with regards to an uncovered case of bribery:

Report in writing to both statutory and supervisory body of the subject under review (or the Assembly – self-governments)But: no reporting requirement to regulatory bodies under the Czech legislation (unlike AML/FT)

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Auditor as an Advisor

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Auditor as an advisor: forensic audits

Forensic auditors:where business related behaviour does not comply with expectation orwhere facts, people and organisations do not agree.

Forensic auditors assist in reconciling discrepancies between the expected and the reality. In particular, they help:

identify what the norm is or what the norm should be,establish what happened, andrecover the status quo.

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Example of reactive services: FCPA-related investigations

Key legislature on cross-border bribery and corruption issues:US Foreign Corrupt Practices Act 1977 (“FCPA”) Anti corruption measures in terms of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“OECD” convention).

What does the FCPA provide for?Jurisdiction: applies to directors, employees, agents and third parties acting on behalf of any US company and any foreign SEC registrant.Creates criminal offence of making payments for the purposes of influencing foreign officials. Books and records charges:

Requires all publicly held US companies and SEC registrants to maintain accurate books and records and devise and maintain a system of internal controls which prevents bribes being disguised.

Applies to individuals and to legal personae (companies etc).

What are the penalties for violation of FCPA provisions?Large fines for companies (up to $2m per violation)Large fine for individuals (up to $100k per violation)Imprisonment for individuals (up to 5 years)Disgorgement of profits – the profits derived from corrupt activity are stripped out of the company

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Auditor as a Citizen

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Auditor as a Citizen

Auditors and audit companies are members of a wider civil society - corporate social responsibility and the concept of ethical entrepreneurship

Potential allies of civil society organisations (CSOs) in promoting standards of good governance:

Support to selected CSOs

Participation in ad hoc coalitions

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Summary

Role of auditors in countering corruption discussed

Following key roles identified:

Audit of financial statements

Auditor as an advisor

Auditor as a citizen

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Alexander Nagy

KPMG Česká republika, s.r.o.

+420 222 123 528

anagy@kpmg.cz

www.kpmg.cz

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