FORENSIC ADVISORY The Role of Auditors in Fighting Corruption Alexander Nagy, Director 12 November 2008

2 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

3 Audit of Financial Statements

4 Audit of financial statements Auditors’ responsibilities are set out in Act no. 254/2000 Coll., on Auditors, as amended Further regulation set by local and international standards Responsibilities include inter alia audit of financial statements Duties 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)

5 Auditor as an Advisor

6 Auditor as an advisor: forensic audits Forensic auditors: where business related behaviour does not comply with expectation or where 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, and recover the status quo.

7 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

8 Auditor as a Citizen

9 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

10 Summary Role of auditors in countering corruption discussed Following key roles identified: Audit of financial statements Auditor as an advisor Auditor as a citizen

11 Alexander Nagy KPMG Česká republika, s.r.o The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Informace zde obsažené jsou obecného charakteru a nejsou určeny k řešení situace konkrétní osoby či subjektu. Ačkoliv se snažíme zajistit, aby poskytované informace byly přesné a aktuální, nelze zaručit, že budou odpovídat skutečnosti k datu, ke kterému jsou doručeny, či že budou platné i v budoucnosti. Bez důkladného prošetření konkrétní situace a řádné odborné konzultace by neměla na základě těchto informací být činěna žádná opatření. © 2008 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in the Czech Republic.