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. Interview 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 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. Findings 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 situation, at least internally. A consistent message must be formulated and used by management. 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. 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. |