Thu, Mar 31, 2016

Mastering Internal Investigations: Protect Your Company from the Inside Out

Conducting an internal investigation when confronted with evidence or allegations of potential wrongdoing is a critical response of an effective ethics and compliance program. In determining an enforcement action, regulators will consider, among other things, a company’s ability to monitor its compliance with laws and regulations as well as its cooperation and responsiveness.

Shareholders, customers, and employees equally expect a company to investigate allegations of wrongdoing.

In our many years of experience working with clients on in-house investigations, we see that irrespective of the internal controls a company has in place or the company size, a company will have to deal at some point with allegations of fraud and misconduct and the resulting internal investigations.

Allegations that could appear to be minor at the onset of an investigation can soon turn out to be just the “tip of the iceberg” once more evidence is uncovered.

An effective internal investigation has many potential benefits, including:

  • Mitigating liability
  • Minimizing reputational risk
  • Preempting costly actions
  • Regaining control
  • Increasing productivity
  • Deterring future wrongdoing


It can be very easy for panic to set in when allegations are made or potential wrongdoing is discovered, and for the situation to get out of control. However, having an experienced team of investigators can help prevent such chaos by assisting with the following crucial steps in an internal investigation:

Step One – Preservation Notice

The first step in carrying out an investigation is to ensure any potentially relevant documents, records, or information is preserved. This can be done by issuing a data preservation notice that suspends any document destruction practices and makes clear to all relevant parties that they must preserve documents, information, or communications related to the investigation, which is particularly important if the company does not have a specific record retention policy.

Step Two – Define the Scope

The affected company should begin working with independent experts to help determine the scope of the investigation. It is crucial to be as specific as possible about where the inquiry is going at its onset. Depending on the magnitude and nature of the potential issue, the company should also consider preparing a corporate communications strategy in case the allegations are leaked and become public.

Step Three – Focus

The most common challenge that we see in an internal investigation is doing too much and lacking focus. For example, an in-house investigator may be concerned that prosecutors could question the thoroughness of the investigation, hence finding the right balance can be tricky.

Having the end goal at the top of mind (i.e., the report scope) at every stage of the investigation can assist in keeping the investigation in check. For example, is the final report going to be addressed to the U.S. Department of Justice (DOJ), U.K. Serious Fraud Office (SFO), or the company's audit committee/the board?

During the investigation interviews, a witness might deliberately or unintentionally share leads about unrelated issues, which might seem important but may not necessarily be related to the particular issue or incident under investigation. It is important to stay focused. An experienced and professional investigator will have the experience to assist the internal investigations team in deciding which critical leads should be followed. Striking the right balance is an art!

Step Four – Team

The success of an investigation depends on the team’s experience in internal and white-collar investigations. In-house resources’ knowledge of the business is a great starting point, and external experts such as forensic accountants and professional investigators will bring objectivity, independence, and subject matter expertise into the investigations.

Step Five – Collect and Review Documents

A thorough review of documents, records, and information depends on the team’s skill sets. An investigation should not be regarded as “document and e-mail review” only. In Kroll’s experience, investigations should be approached from different angles to build the big picture and to prepare for the interview stage.

Data analytics to identify anomalous transactions and patterns during data recovery, collection, and computer forensics are advisable steps in a successful investigation. More often than not, however, these skills and technology are not available to an in-house investigator. Determining where potentially relevant documents are likely to reside (i.e., jurisdictions or business units) early in an investigation can be a complex exercise.

This stage is usually the costliest part of an internal investigation, but the assistance of external experts can help make the process more manageable.

Step Six – Witness Interviews

Deciding whether to interview potential witnesses before or after document reviews depends on the situation. Timing is key and requires critical thinking. If the investigation time-frame is short and things are moving quickly, sometimes it is challenging to interview witnesses after reviewing the documents. A best practice is to have a second person in the room responsible for taking detailed notes and writing up an in-depth report of the interview.

Step Seven – Privileged or Not Privileged

Whether or not privilege should be asserted or preserved in the context of an internal investigation should be considered at the very outset of the investigation. Together with its internal and/or external legal counsel, a company beginning an internal investigation should give careful thought to this at the outset and put the appropriate structure and guidelines for the investigation in place at that time. Kroll often works under instructions from internal and/or external legal counsel on behalf of its clients. At a minimum, information gathered through an investigation should only be disclosed on a need-to-know basis, and each document should be stamped as “Confidential” or “Privileged & Confidential”, depending on the circumstances of the investigation and how it is being handled by the company.

While the above steps are meant to assist in conducting an effective internal investigation, it is important to have the right resources and time dedicated to the investigation to ensure quality results are obtained. Many times this means having to engage external experts who bring a different perspective to investigations and ensure a broader coverage of an organization’s risk exposure. It is also important to appoint external experts who are familiar with working with legal counsel in multiple jurisdictions to ensure that privilege is maintained throughout an internal investigation, where applicable.

External investigation teams, such as those from Kroll, include experts with diverse skill sets and specializations, including forensic accountants, fraud investigators, intelligence specialists, and asset tracing and recovery experts, as well as data analytics and cyber investigation experts. The diversity of these external experts assists in drawing evidence from internal and external sources that might not always be available to in-house investigators and which may considerably increase the efficacy of an internal investigation.


Forensic Investigations and Intelligence

The Kroll Investigations, Diligence and Compliance team consists of experts in forensic investigations and intelligence, delivering actionable data and insights that help clients worldwide make critical decisions and mitigate risk.