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After most investigations, organisations (including internal audit and specialist investigation units) frequently move to the next piece of work, ultimately not identifying, remediating or monitoring the underlying root cause of the issue being investigated. Following any investigation, organisations should seek to incorporate a practice within the investigation process that includes a post-investigation controls review, which provides considered expert and professional opinion in recommending control improvements. In many cases, organisations will generally find through basic analysis that repeat offences of the same issues are occurring, including control failures that had led to the internal malpractice occurring. In order to successfully implement such an approach, there are two critical steps organisations need to consider. Step 1 – prepping your investigation team The skill set of the investigation team members in situ should be assessed to ensure that there are adequately skilled and trained for investigation purposes but also to ensure that they are equipped to capture operational experiences from an audit and/or compliance perspective.  This approach will make certain that the post-investigation review and subsequent recommendations are competent while also addressing any personal development needs on a continuous basis. Where an organisation has a dedicated investigation unit, such investigation specialists should look back at an historical investigation case and undertake a mind map session with their teams to understand any control issues. This should then be repeated on several differing case types. An invitation should also be provided to the audit department to attend the workshop and comment as to whether:  these issues had been raised before in the organisation (potentially highlighting cultural deficiencies); and  provide advice as to what the audit methodology to document the issues highlighted would be, what recommendations and actions should be considered and how to rate and score the issues.  The output of the workshop not only provides an understanding as to what a control weakness looks like, but also creates a relationship with the audit department (whether it be internal or outsourced) who, on an advisory basis, can assist with confirming audit issues that could be delivered back to the organisation post-investigation. The latter could include co- attendance at meetings with the business area to counter any transparency and technical perspective.  Step 2 – find and safeguard against repeat offences Often investigations, by their very nature, are focused on the specific allegations at hand and fail to consider the risk that potential repeat offences might very well be occurring elsewhere in the organisation. An organisations remedy is often just to issue a report to the business area that is based on the current investigation findings. Experience has shown that as part of an effective post-investigation control review process and proactive fraud risk management strategy, organisations should undertake an additional review using data analytics information, not only to assess if potential repeat offences have occurred with the case to hand, but highlighting other offences or breaches elsewhere in the business.  What will be the result? These additional tasks incorporated by an investigation team will often be viewed with trepidation but with correct facilitation and a step-by-step approach, a process can be adopted with ease and skills will be improved as a result. More importantly, this process will add value to the business which, in theory, should align itself to the investigation/internal audit mission statement. Adopting proactive fraud risk management will mean reduced repeat offences and, ultimately, save costs and protect the brand reputation.  Michael Fitzgerald is a Senior Manager, Governance Risk & Internal Controls, at Mazars.

Jan 21, 2019
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BY KIERAN MOYNIHAN The challenge for board teams has never been greater in terms of the unrelenting wave of disruption happening in every sector: radical new business models, ferocious competition, regulatory change, new business models, technology disruption and geo-political crises. Each board team needs to be at the top of its game to help navigate the organisation through turbulent waters as well as grasp significant strategic opportunities.  One of the hallmarks of high-performing board teams is the ability to demonstrate consistently strong levels of high-quality challenge and debate which not only optimises the core function and decision-making capability of the board but builds sustainable, high-levels of respect and trust between the executive and non-executive board members. Outstanding levels of high-quality challenge and debate enable the board team to really push each other to maximise its intellectual firepower, the expertise and experience of each board member, the diversity of thinking styles around the table, the independence of the non-executive directors and, in doing so, to help the board team make the very best decisions as well as “see around dark corners” to spot early serious risks and threats to the organisation. Why do so many board teams, even with highly-experienced executive and non-executive directors, struggle in the area of challenge and debate? A few reasons. Poor leadership by the board chair and CEO in terms of enabling the highest levels of openness, accountability and legitimising genuine robust constructive challenge of the executive team; Lack of understanding by both execs and non-execs of how each individual board member needs to effectively contribute and behave in terms of tough challenge and resulting debates; A defensive attitude by the CEO and executive team that neither welcomes or facilitates challenge by the non-exec directors; A poor attitude and approach by the non-exec directors in terms of low-quality aggressive questioning, laziness/refusal to study the materials/issues properly or unnecessary challenge and second-guessing of the executive team; The board team in cruise-mode and too much politeness around the board table; And there are more where that came from. However, there are some practical steps boards are able to take to develop a virtuous cycle of challenge, debate, respect and trust within your board team. Nurturing challenge and debate The board chair has a critical leadership role in legitimising challenge, encouraging the non-execs to provide constructive oversight of the executive team and to facilitate high-quality  debate. Likewise, the CEO has a key role in setting an example of openness and accountability, and engaging with the non-execs to debate the key issues Developing mutual respect  As a board team improves the level of constructive challenge and debate, it gradually builds levels of respect and trust in each other.  Sharing perspective It is a lot easier to be on the receiving end of some tough challenge when you trust the board member raising it. While you might still disagree with their perspective, with truth and respect, you will listen properly and understand their view point which enables you to contribute effectively to the discussion. Transparency A board team can be at its very best when all board members feel that everything is out on the table, no information has been held back and, for better or worse, the brutal reality is in front of them. This usually requires an extremely open and highly accountable CEO and executive team who will provide the board with an honest and comprehensive picture, and flag bad news early even it reflects poorly on the executive team’s performance. This also requires a high-quality board information model which enables the non-execs to understand what often is a very large complex maze of operational, financial, sales, people and risk data. Working for the good of the board As a spirited give-and-take becomes the norm, each board member listens more effectively and learns to adjust their own interpretations in response to intelligent, thoughtful questions, responses and perspectives. This is ultimately what distinguishes the best board teams. It optimises the decision-making, enables the team to respond swiftly to a crisis and helps identify the transformational strategic opportunities. In summary, every board team has the potential to improve the levels of challenge, debate, respect and trust in the board team. It takes genuine commitment by all board team members and outstanding leadership by the board chair, CEO and company secretary.  Kieran Moynihan is Managing Partner of Board Excellence.

Jan 21, 2019
News

Despite employers often times having sufficient grounds for dismissal, they invariably lose unfair dismissal cases because fair procedures and the rules of natural justice were not adhered to but there are procedures you can follow do to avoid this. It's unfortunate when an unfair dismissal case is lost because advice from experienced professionals was not obtained before the dismissal procedure was put in place or, in a worst-case scenario, before the dismissal took effect. This is most often the case when it comes to court loses of this kind for companies Constructive dismissal cases can be taken by employees where they themselves terminate their contract of employment, with or without prior notice, due to the conduct of the employer. This starts with a grievance which an employee has concerning his or her terms and conditions of employment, working environment or working relationships. Employee grievances can arise for a variety of reasons such as changing work practices, alleged discrimination, bullying or harassment, health & safety issues, promotion and grading, issues with fellow employees etc.  First, let’s take a look at the legal framework: The Unfair Dismissals Acts 1977-2001 are intended to provide employees with legal protection from being unfairly or constructively dismissed from their jobs and to establish an adjudication system to provide redress for any employee.  Section 6(7) of the Unfair Dismissal Act states that in determining whether the dismissal is fair or unfair it has regard to: (A) The reasonableness or otherwise of the conduct of the employer in relation to the dismissal; and  (B) the extent, if any, of the compliance or failure in complying with the employer in relation to the employee to the disciplinary procedures or the provisions of the Code of Practice on Disciplinary and Grievance Procedures (Industrial Relations Act 1990) (Code of Practice on Grievance and Disciplinary Procedures) (Declaration) Order 2000.  The Rules of Natural Justice Require an employee is:  made fully aware of any formal allegation made against them; afforded the opportunity to reply to any formal allegation made against them; afforded the right to representation throughout the disciplinary and grievance processes; afforded the right to a full and objective investigation of the allegation or complaint; and afforded the right of appeal the outcome. Implementation A disciplinary procedure is designed to provide an objective and consistent process to address issues of misconduct, capability, competence or qualifications, or failure to meet company standards relating to behaviour or performance. The first step is to ensure that you not only have the necessary procedure in place but that it has been issued to and signed off by all employees in order to guarantee that you are in a position to correctly manage disciplinary issues in the workplace.  The aim of having a grievance procedure is to encourage consistency, transparency and fairness in the handling of workplace problems or complaints. It provides individuals with a course of action if they have a complaint, a point of contact and timescales to resolve issues of concern and aims at resolving employee problems quickly and informally.  Separation of process Separation of process is required in both disciplinaries and grievances. This means that the judge is not the jury. One person has responsibility for the investigation and one person has the responsibility for the outcome. Similarly, a different person who has not been involved has responsibility of the appeal stage. In some cases, this may be the Assistant Manager acting as the Investigation Manager; Office Manager acting as the Outcome Manager; the Managing Director acting as the Appeal Manager. Of course everyone should remain objective. Correspondence The separation of process extends to the correspondence which is issued through the disciplinary and grievance processes also. The invitation to the investigation meeting will be drafted by the Investigation Manager. This manager may also be involved in the suspension of the employee in cases of suspected gross misconduct and will also interview witnesses, finalise the investigation and draft a summary report to be issued to both the employee and the Outcome Manager. The invitation to the outcome meeting, where the employee has an opportunity to respond to the summary report and include any other comments, will be drafted by the Outcome Manager. The sanction or grievance outcome will be issued by the Outcome Manager and will include the process of appeal and to whom the employee can address their appeal.  Terms of reference Prior to commencement of the disciplinary and grievance process, a term of reference is put in place to include nominations responsible people/managers for each stage.  Note taking Note takers can accompany the managers at each stage. Minutes of all meetings must be provided to all parties, including the employee, to review after each meeting. Do I still need to comply if I have a small organisation? It is important to note that in smaller organisations the separation of process must still be adhered to. Case law has indicated this the separation of process is key to ensuring fair procedures within any organisations and no leeway is given to smaller organisations for failing to comply.   Caroline McEnery is Managing Director of The HR Suite and an HR and employment law expert. 

Jan 21, 2019
News

The European Securities and Markets Authority (ESMA) published its Advice to the European Union (EU) Institutions – Commission, Council and Parliament – on initial coin offerings and crypto-assets. The Advice clarifies the existing EU rules applicable to cryptoassets that qualify as financial instruments and provides ESMA’s position on any gaps and issues in the current EU financial regulatory framework for consideration by EU policymakers. ESMA has been working with National Competent Authorities (NCAs) on analysing the different business models of crypto-assets, the risks and potential benefits that they may introduce, and how they fit within the existing regulatory framework. Based on this work, including a survey of National Competent Authorities (NCAs) during 2018, ESMA has identified a number of concerns in the current financial regulatory framework regarding crypto-assets. These gaps and issues fall into two categories: For crypto-assets that qualify as financial instruments under MiFID, there are areas that require potential interpretation or re-consideration of specific requirements to allow for an effective application of existing regulations; and Where these assets do not qualify as financial instruments, the absence of applicable financial rules leaves investors exposed to substantial risks. At a minimum, ESMA believes that Anti Money Laundering (AML) requirements should apply to all cryptoassets and activities involving crypto-assets. There should also be appropriate risk disclosure in place so that consumers can be made aware of the potential risks prior to committing funds to crypto-assets. ESMA’s work on crypto-assets has highlighted a number of issues that are beyond ESMA’s remit. The Advice allows the EU Institutions to consider possible ways in which the noted gaps and issues may be addressed and subjected to further analysis. ESMA will continue to actively monitor market developments around crypto-assets while cooperating with NCAs and global regulators.

Jan 18, 2019
News

Taxes paid by companies remain a key source of government revenues, especially in developing countries, despite the worldwide trend of falling corporate tax rates over the past two decades, according to a new report from the OECD.   A new OECD report and database, Corporate Tax Statistics, provides internationally comparable statistics and analysis from around 100 countries worldwide on four main categories of data: corporate tax revenues, statutory corporate income tax (CIT) rates, corporate effective tax rates and tax incentives related to innovation. The new OECD analysis shows that corporate income tax remains a significant source of tax revenues for governments across the globe. In 2016, corporate tax revenues accounted for 13.3% of total tax revenues on average across the 88 jurisdictions for which data is available. This figure has increased from 12% in 2000. Corporate taxation is even more important in developing countries, comprising on average 15.3% of all tax revenues in Africa and 15.4% in Latin America & the Caribbean, compared to 9% in the OECD. Corporate tax revenues have also held up when considered as a percentage of GDP, where the average share increased from 2.7% of GDP in 2000 to 3.0% in 2016 across the jurisdictions included in the database. The new OECD analysis shows that corporate tax remains a key source of revenue, despite a clear trend of falling statutory corporate tax rates – the headline rate faced by companies - over the last two decades. The database shows that the average combined (central and sub-central government) statutory tax rate fell from 28.6% in 2000 to 21.4% in 2018. More than 60% of the 94 jurisdictions for which tax rate data is available in the database had statutory tax rates greater than or equal to 30% in 2000, compared to less than 20% of jurisdictions in 2018. Comparing statutory corporate tax rates between 2000 and 2018, 76 jurisdictions had lower tax rates in 2018, while 12 jurisdictions had the same tax rate, and only six had higher tax rates. In 2018, 12 jurisdictions had no corporate tax regime or a corporate income tax rate of zero. The OECD analysis highlights that CIT revenues are influenced by many factors, and therefore focusing on headline statutory tax rates can be misleading. For example, jurisdictions may have multiple tax rates with the applicable tax rate depending on the characteristics of the corporation and the income. Progressive rate structures or different regimes may be offered to small and medium-sized companies, while different tax rates may be imposed on companies depending on their resident or non-resident status. Some jurisdictions tax retained and distributed earnings at different rates, while some impose different tax rates on certain industries. Lower tax rates are often available for firms active in special or designated economic zones, and preferential tax regimes offer lower rates to certain corporations or income types. Another factor influencing CIT revenues is the definition of the corporate tax base. The OECD Corporate Tax Statistics database assesses how standard components of the corporate tax base reduce the effective tax rate faced by taxpayers, including the effects of fiscal depreciation and several related provisions, such as allowances for corporate equity. Taking these provisions into account, the database shows that “forward-looking” effective tax rates are generally lower than statutory tax rates, with an average reduction of 1.1 percentage points observed in 2017 across the 74 jurisdictions analysed in the database. Targeted tax incentives, such as for research and development (R&D) expenditures and intellectual property (IP) income, are widely used to reduce the corporate tax burden for specific activities. The new database is intended to assist in the study of corporate tax policy and expand the quality and range of statistical information available for analysis under the OECD/G20 Base Erosion and Profit Shifting (BEPS) initiative. In 2015, the OECD reported that base erosion and profit shifting was having significant effects on the corporate tax base, estimating revenue losses to governments from BEPS in the range of USD 100-240 billion (2014 figures), equivalent to 4-10% of corporate tax revenues. The new database, which will be updated annually, aims to improve the measurement and monitoring of BEPS. Future editions will also include an important new data source – aggregated and anonymised statistics of data collected under country-by-country reporting now being implemented under BEPS Action 13 – that will allow “backward-looking” assessment of effective tax rates actually paid by firms. The publication and data are accessible at: https://oe.cd/corporate-tax-stats. Source: OECD

Jan 18, 2019
News

New research shows a firm’s competitive advantage can last more than three times as long as previously believed. INSEAD Assistant Professor of Strategy, Phebo Wibbens, found that companies with “higher-order” resources can greatly outlast their competitors. Traditionally, strategy scholars have focused on a firm’s operating resources – assets and capabilities that directly affect profit – when analysing its competitive advantage. Based on that assumption, high-performing firms were believed to have a run of success lasting on average about five years. But as IKEA, Apple and other firms have shown, a much longer period of success is available to some companies. Discovering what gives these firms and others like them their longer lasting success, Wibbens created a mathematical model based on empirical data covering 4,000 firms in the United States over three decades. In “Performance persistence in the presence of higher-order resources”, published in the Strategic Management Journal, Wibbens found that firms can make their operating resources go further when they are complemented with often intangible but valuable higher-order resources, such as superior strategic planning, merger & acquisition teams and innovation capabilities. With his model of the dynamics between resources and profits, Wibbens found that when both operating and higher-order resources were taken into account, firms enjoy a competitive advantage for 18 years on average. Competitive advantage -- conditions that give a company its favourable position -- had been thought to last only about five years on average. When evaluating their firms, executives tend to only consider their operating resources, ones that directly affect profit. Central to a firm’s long-term success, however, are “higher-order” resources, those intangible assets that improve a company and help drive long-term growth, such as strategic capabilities. Long-term successful companies must be able to change the way they operate; this is the fundamental idea of higher-order resources, also called dynamic capabilities.  “Higher-order resources are not quantifiable the way that profits are,” says Wibbens. “Fundamentally, both operating and higher-order resources are always idiosyncratic and unique. If there were a general prescription for better resource positions, every firm would be able to get them and these resources would no longer grant any advantage. This makes empirically measuring them a challenge.”  The model The average duration of competitive advantage based on previously used models (column a) is 5 years, about half the duration from the estimate of using the new model with only operating resources (column b). Adding the effect of higher-order resources (column c) almost doubles the estimated duration of competitive advantage again to approximately 18 years. “To confirm the importance of higher-order resources for prolonging competitive advantage, I had to consider the patterns expected in profit and other large-scale observable data, like the persistence of profit growth. Then I used statistical procedures to find the data consistent with what we would expect in firms with higher-order resources – akin to how physicists use extensive computer models to detect the signal of otherwise undetectable new particles such as the Higgs boson,” explains Wibbens. From an academic perspective, one of the key contributions of the article is to distinctly define operating and higher order resources in a mathematically rigorous way. In addition to the findings based on the model and theory, Wibbens’ article shows academics how using Bayesian hierarchical analysis in the field of strategy can provide new insights on core strategic questions, like what makes some firms more profitable for longer.  Implications for managers  In the article, Wibbens suggests ways for managers to evaluate their own firms’ higher-order resources and build strategies based around their organisations’ unique resource strengths. Operating resources lead to persistence in the level of profit differences; higher-order resources lead to persistence in the growth of profit differences.  Higher-order resources help bolster operating resources. They produce persistently better resources over the long term, leading to a longer stretch of competitive advantage. Although broad, these findings demonstrate that acknowledging the importance of higher-order resources is a decidedly valuable insight.   Source: INSEAD

Jan 18, 2019