Compliance pitfalls in foreign business - typical risks and how to counter them effectively

International business relationships are a matter of course for many organisations today - whether in research, the service sector or industry. However, it is precisely where cultural differences, language barriers, legal uncertainties and a lack of control mechanisms come together that the risk of breaches of rules and fraudulent behaviour increases significantly. As an audit and compliance practitioner for many years, I have experienced, analysed and investigated numerous such risks in various international contexts - both within and outside Europe. In this article, I would like to identify typical pitfalls and provide ideas on how organisations can effectively protect themselves against them.

Sham transactions, sham offers, sham invoices - when structures are lacking

One particularly critical observation from my practice concerns the tendency towards a lack of transparency in procurement - for example, in the case of foreign projects or foreign branches. I have come across cases in which suppliers offering services did not exist, invoices were issued twice or services were never or only partially provided in relation to the contractual debt. In some cases, this also happened in combination. In many cases, it is not just structural deficiencies, a lack of controls or simple negligence, but criminal energy that is the driving factor.

In one specific case outside Europe, a targeted on-site audit uncovered a network of bogus suppliers who were passing orders to each other and thus diluting verifiable service flows - at the expense of public funding. Such cases are difficult to investigate retrospectively, extremely unpleasant for everyone involved and generally damaging to the reputation of the organisation concerned. But they can be prevented - if a suitable auditing system is set up and actively maintained at an early stage.

Price law violations and billing fraud

Another frequent problem: breaches of pricing regulations - especially in the case of cooperation with third countries or international partner organisations. One of my earlier investigations at a German research centre abroad revealed that services were systematically billed at inflated transfer prices - with the aim of shifting project funds to private budgets. The fraud only became apparent after a full audit of all transactions within a defined period of time.

Such special compliance investigations are time-consuming, but necessary if there is growing evidence. It is always important to proceed with a high degree of sensitivity, impartiality and methodical care.

What can organisations do?

In my view, three things are key:

1. Early prevention: Investing in training, education and clear structures from the outset significantly reduces the risk.
   

2. Risk-orientated audit planning: Audit resources should be targeted at particularly vulnerable areas - including international business.
   

3. Anchoring a compliance culture: Misconduct rarely starts as fraud - it often begins with unclear rules and the feeling that ‘nobody will notice’.

My approach: practical, discreet and effective

I support organisations in the introduction, review and optimisation of their auditing and compliance processes - also in an international context if required. Over three decades of experience show that Good governance is no coincidence, but the result of conscious decisions.

If you have any questions about specific situations or initial indications of irregularities, please feel free to contact me - confidentially and without obligation.

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