5 minutes with… Frances McLeod, Forensic Risk Alliance

The Drawdown (TDD): What does the Forensic Risk Alliance do?

Frances McLeod (FM): Forensic Risk Alliance (FRA) focuses on forensic—or investigative—accounting, data governance, and compliance and risk mitigation. Our forensic accounting work often involves investigations into white collar issues such as fraud, insider trading and financial crime. We do a lot of anti-corruption work and also advise companies on compliance-related issues to help them proactively manage risk. To do this, we complete assessments of firms’ compliance programmes and design systems that help them monitor and test the effectiveness of controls within the compliance environment.

The other side of our business is leveraging data in various forms. We have a data analytics team which looks at structured and unstructured data patterns and trends. This is particularly useful in anti-money laundering and sanctions investigations, and forms the backbone to a lot of the anti-corruption work we do where we look for bribes and inappropriate payments. Part of the story is told outside accounting or transactional data in various formats including email, chatroom data and instant messaging data and in any way people record communications such as voicemail.

TDD: How did it come about? What were the reasons for setting it up?

FM: There were three of us who set up FRA, my brother Toby Duthie, our partner Greg Mason and I. We were trying to figure out the best ways to respond to big global regulatory investigations and dealing with incredible amounts of data. These were the concepts behind us setting up FRA. Then Toby joined us with his experience in projects finance because he wanted to do something more entrepreneurial. That was the genesis behind it—wanting to build up and develop something similar to what we were seeing the Big Four trying to do, but in a more targeted way.

We were initially focused on delivering these services to European lawyers both in-house and external, but ironically we won a lot of work in the US because there was more enforcement activity there at the time. We started working transatlantically from day one.

TDD: How often do you work with PE?

FM: We’ve done a lot of work with PE - particularly European funds - around pre- and post-acquisition due diligence, where we focus on the compliance risks. Currently, we’re doing an outreach focused on helping funds manage Covid-19-specific risks we’ve identified.

Additionally, we are sensitising PE funds to some of the risks they should be taking into consideration as they try to get their investments to mitigate Covid-19 impacts. We expect there to be a lot of investigative work as a result of the stresses and strains companies have put themselves under from a financial reporting perspective, as they try to access the vast amounts of stimulus money that is being pumped into various businesses particularly in the US.

TDD: FRA is backed by private equity firm Dunedin. How did that come about and why did you choose the firm?

FM: We’d been growing organically for 17 years, but one thing we’d struggled with was increased operationalisation. We knew an external investor could help us put more rigour around beefing up our operations and reporting, which had become increasingly necessary. Another factor was Greg, Toby and I were looking to de-risk a little, but still remain very engaged in the business to continue to drive the growth trajectory. With this in mind, we wanted to find a PE fund which was comfortable with having a minority investment, to enable us to maintain control of the strategy and growth, and this was important for our colleagues and partners too.

TDD: What do you see as the greatest challenges impacting the PE industry over the coming year?

FM: I think there will be challenges and rewards. There will be lots of assets out there when we come through the other end of Covid-19, but it’s a case of evaluating and taking advantage of those right opportunities, really looking at the genuine underlying value of the businesses and their abilities to sustain in our “new normal” working environment.

From an operational perspective, there has got to be a real focus on due diligence. If you see something that appears compelling and the business fundamentals are there, I’d say go ahead. But make sure you’ve done your due diligence, dug into the data, and try to view it through slightly cynical eyes, so you know the underlying economics and financial fundamentals are as robust as you think they are. The stains of a post-COVID economy will expose weaknesses, but can depend on how long it takes for these to surface.

TDD: What are you optimistic about?

FM: When it comes to data governance, it’s about helping companies control their information and data and leverage it in a way that remains secure. I’ve already seen some tech for this in the banking compliance space so I’m excited to see what else is in store for other sectors, including tech which enables you to manipulate live data without compromising it. The more we can leverage technology, the more we can focus on getting to the beautiful solution.