The document discusses detecting and preventing corruption in mergers and acquisitions. It outlines several areas that should be scrutinized during due diligence, including ethics policies, hiring practices, procurement policies, and nepotism policies. It also recommends reviewing employee turnover, expenses reports, theft reports, and insurance claims. The document concludes by proposing an action plan to implement stronger ethics programs, improve hiring and procurement standards, enforce conflict of interest disclosures, and thoroughly investigate any issues that arise.

1. Agincourt
International Security Management
Detecting and Preventing Corruption
in
Mergers and Acquisitions

2. Detecting and Preventing Corruption
in Mergers & Acquisitions
Many mergers and acquisitions have resulted in horror stories-
there was internal corruption that was undetected during diligence
and it remained undetected for far too long after the transaction
was completed.
The following presentation shows areas that should be scrutinized and the
steps taken to ensure there are no unpleasant surprises.
Our goal is to quickly identify corruption and take appropriate remedial
action.

3. Detecting and Preventing Corruption
in Mergers & Acquisitions
Even the best due diligence cannot discover all instances of:
• Conflicts of interest
• Fraud
• Internal theft
• Unethical management behavior
• Sexual harassment

4. Detecting and Preventing Corruption in
Mergers & Acquisitions
• Venture Capitalists and Investors look for bargains
• Bargain companies often have cash issues and have
“economized” by:
• Reducing staff
• Reducing audits
• Cutting salaries
• Not enforcing policies and procedures
• Not properly vetting vendors
• Ignoring warning signs and red flags

5. Detecting and Preventing Corruption in
Mergers & Acquisitions
Economizing measures create
temptation in the workplace.
TEMPTATION + OPPORTUNITY =
MORE CORRUPTION

6. Detecting and Preventing Corruption in
Mergers & Acquisitions
When assessing the potential for corruption in a merged or acquired
company, the following areas should be reviewed:
Ethics Policy / Code of Conduct
Hiring Policies and Practices
Procurement Policies and Procedures
Nepotism Policy
Turnover
Expense Reports
Theft and Incident Reports
Insurance Claims

7. Detecting and Preventing Corruption in
Mergers & Acquisitions
Ethics Policy / Code of Conduct
Does the company have an Ethics Policy / Code of Conduct?
Is it in line with your company’s Ethics Policy / Code of Conduct?
How often do employees receive Ethics Training?
How are violations reported?
Who receives reported violations?
Is there a written procedure for dealing with violations?

8. Detecting and Preventing Corruption in
Mergers & Acquisitions
Hiring Policies and Practices
Does the company conduct background checks on all employees?
Are the background checks conducted internally or contracted?
Does the background check include:
Education Verification
Credit Check
Reference Verification
Social Media Check
Citizenship
Does the company conduct pre-employment and post-employment drug
screening?

9. Detecting and Preventing Corruption in
Mergers & Acquisitions
Procurement Policies and Procedures
Do the company’s procurement policies and procedures meet industry
best practices standards?
Has the procurement department been routinely audited?
Does the Procurement Department have a conflict of interest policy and
has it been enforced?

10. Detecting and Preventing Corruption in
Mergers & Acquisitions
Nepotism Policy
Does the company have a nepotism policy and is it enforced?
Often, small companies and privately held companies hire family
members at all levels
It is critical to understand familial relationships in companies that
have been merged or acquired, including vendor relationships

12. Detecting and Preventing Corruption in
Mergers & Acquisitions
In addition to the areas already mentioned, the following should be
reviewed and discrepancies addressed:
Turnover
Expense Reports
Theft and Incident Reports
Insurance Claims

13. Detecting and Preventing Corruption in
Mergers & Acquisitions
Turnover
Turnover should be reviewed to determine if any areas of the company
have higher turnover than others and if so, why?
High Turnover is indicative of:
Poor management
Substandard or unsafe working conditions
Management misconduct
Bias and/or discrimination

14. Detecting and Preventing Corruption in
Mergers & Acquisitions
Expense Reports
Expense reports should be audited to determine if individuals or business
units have higher than average expenses especially under the
entertainment category
Red flags include individuals who do not submit receipts with their
expense reports
Individuals or units with higher than average and/or undocumented
expenses should be scrutinized for other discrepancies as this can be
indicative of other unethical behavior

15. Detecting and Preventing Corruption in
Mergers & Acquisitions
Theft and Incident Reports
Theft and incident reports should be reviewed to determine if there is a
pattern to what is being taken, where the thefts occur and the frequency
Excessive theft is indicative of poor physical security, inadequate checks
and balances or internal theft

16. Detecting and Preventing Corruption in
Mergers & Acquisitions
Insurance Claims
Insurance claims should be reviewed to determine if any patterns exist
that indicate recurring issues or if there were any “extraordinary” losses
Contested or denied claims should be carefully reviewed with the carrier
to determine if there were any suspicious circumstances surrounding the
claim
Any suggestion of insurance fraud should be thoroughly investigated

17. Detecting and Preventing Corruption in
Mergers & Acquisitions
Action Plan
The Human Resources (HR) Department is key to implementing
an anti-corruption culture
The acquiring company should carefully evaluate all HR
personnel to determine if they are capable of supporting its
goals and objectives
Individuals who cannot effectively implement new programs
should be replaced or reassigned

18. Detecting and Preventing Corruption in
Mergers & Acquisitions
Action Plan – Ethics
An Ethics Policy / Code of Conduct is the cornerstone for detecting and
preventing corruption
If the existing program is deemed to be inadequate, a carefully
structured transition program should be implemented
Employees at all levels should participate in meetings to discuss ethics
and conduct and their input solicited to improve the existing program
If employee feedback is incorporated into the new program, it is more
likely that employees will take ownership of the values and principals
necessary to prevent corruption and unethical conduct

19. Detecting and Preventing Corruption in
Mergers & Acquisitions
Action Plan – Ethics
Once the Ethics Policy/Code of Conduct is ready, employees at all levels
should participate in the training
It is critical that top management is perceived as owning the program,
placing a high value on ethics, and setting a leadership example and tone
A toll-free 24/7 Ethics Line should be initiated so that employees can
anonymously report violations or concerns
A trusted senior management person in HR, Legal or Audit should receive
the reports and be responsible to ensure they are properly investigated.
An Ethics Committee should meet monthly to review reported violations
and follow-up

20. Detecting and Preventing Corruption in
Mergers & Acquisitions
Action Plan – Hiring Policies and Practices
Hiring Policies and Practices should be reviewed to ensure that they are
adequate to screen out undesirable applicants
If background screening is inadequate, it should be immediately upgraded
The files of managers should be reviewed and new background checks
conducted if necessary
Drug testing policies and procedures should be reviewed. If inadequate, a
new program should be initiated and all employees tested

21. Detecting and Preventing Corruption in
Mergers & Acquisitions
Action Plan – Procurement Policies and Procedures
Procurement policies and procedures should be reviewed and brought
into line with industry best practices
Procurement personnel should be required to put in writing any conflicts
of interest or potential conflicts of interest per the new Ethics Policy/Code
of Conduct
Vendor files should be audited to determine if bidding procedures were
used
Vendors should be randomly verified
Any discrepancies or suspicious activity should be investigated
If necessary, vendor services should be re-solicited

22. Detecting and Preventing Corruption in
Mergers & Acquisitions
Action Plan – Nepotism/Conflicts of Interest
As per the Ethics Policy/Code of Conduct, employees must disclose all
familial relationships at work and with suppliers, as well as any conflicts of
interest or potential conflicts of interest
Each reported instance should be carefully evaluated to determine if such
a relationship compromises a professional working environment and
changes made as necessary
Failure to report familial relationships or conflicts of interest should be
dealt with as violations of company policy

23. YOU GET
WHAT
YOU
TOLERATE

24. Detecting and Preventing Corruption in
Mergers & Acquisitions
Action Plan – Investigations
Each instance of identified questionable activity should be investigated
and a report of investigation submitted to management
Employees need to understand that suspected or identified ethical
violations will be promptly and fairly investigated and appropriate action
taken as necessary
Investigations are critical to ensuring that new policies and procedures are
effective and adhered to

25. Agincourt
International Security Management
Frank Dupuy, Founder and President of Agincourt International Security
Management, has many years of experience in assisting companies
with successfully mitigating internal corruption, including those risks
associated with international transactions. Dupuy is bilingual in
English and Spanish.
Frank can be contacted at:
fdupuy@agincourtism.com
(713) 410-9101