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the matter. The team investigating the
situation should be carefully selected
and may include a senior auditor of
the company, someone from corporate
security, in-house counsel and other
trusted individuals.
Whenever a serious allegation of
wrongdoing is made, the investigation
team should quickly move to secure evi-
dence with all investigative steps docu-
mented. They should gather documents
and evidence, and interview employees
and outside vendors, if necessary. The
investigators must pursue all leads to
determine the extent of the wrongdo-
ing. It is important that the investigative
team maintain an open mind and not let
preconceived notions of what the facts
might be dictate the conclusions reached.
Additionally, all investigative material,
including opinions and conclusions
prepared by the team, must be labeled as
confidential and separate files should be
maintained to segregate the confidential
material.
Suspected employee's
Interview
Confrontation of the suspected employee
needs to be carefully planned, witnessed
and documented and should occur at the
end of the investigation when all other
available facts are gathered. The fact of
the matter is that, before it gets to the
confrontation point, the in-house counsel
needs to have hard evidence.
At the interview, the employee's
response or "story," including any
admissions or concessions, must be
documented. This may involve asking the
employee to sign a written statement with
the account provided. Depending on how
the situation develops, this evidence can
prove invaluable in later civil or criminal
proceedings. In-house counsel should
also watch for applicable privacy laws to
ensure the company does not run afoul of
them.
Action Post Investigative
Findings
Once the investigation is complete, and
if the investigative team has reached the
conclusion that fraud has been commit-
ted, action must be taken. Before com-
municating the decision to the employee,
make sure that an employment lawyer
reviews the basis for it. The decision and
the basis for it should also be communi-
cated to company officers, the board, the
audit committee and any key supervisors.
Until now, things should have been
handled with great confidentiality. But
news of the employee discipline or termi-
nation cannot be contained and the com-
pany is wise to consider the nature of any
response to questions that arise. At this
point, the company must decide how to
handle the public relations aspect of the
situation, at least internally. A consistent
message must be formulated and used by
management.
remedies
The company can start civil proceedings
to claim damages if, following an investi-
gation, it is clear that the company is the
victim of fraud and the persons responsi-
ble for the fraud have been identified. At
the core of most internal fraud cases are
claims for fraud, conversion and breach
of fiduciary duty. Obviously, the company
will also be expected to vigorously pursue
the recovery of stolen property or location
of other assets. In appropriate circum-
stances, it can be necessary to obtain
provisional remedies such as orders
of attachment or accelerated motions
for other preliminary injunctive relief.
This will allow assets to be frozen and
important evidence to be preserved. It
goes without saying that in-house counsel
should consider all options and do every-
thing within its power to recover stolen
property or right other wrongs.
conclusion
Much can be learned from managing
an internal fraud investigation, no
matter how painful such an experience
might be. Also, lessons learned can
substantially improve the operations of
a business. For example, establishing
a formal code of ethics is considered a
hallmark of a well managed company.
Such a code should include examples
of business ethics dilemmas, ethical
tests used by staff to facilitate decision-
making, and best practices. A working
and effective compliance program is also
critical. Adopting systems for routine
auditing, establishing mechanisms for
reporting suspicious information, and
creating a top-down atmosphere of strict
ethical behavior so it becomes part of
the company's core culture are all at the
heart of a good compliance program. By
implementing appropriate controls and
preventive measures, companies can
make dramatic progress to weed out the
enemy within.