Internal Investigations: Are you prepared?
With increasing frequency, we see headlines calling for another internal investigation. The public, shareholders, boards of directors, the government, families, etc. all want answers – and they want answers, "NOW!" And it is often in this high-stress, crisis environment that you need to conduct an internal investigation.
Is your company or organization prepared if an internal investigation is needed? Have you planned for how and who would do that investigation? Have you considered whether the investigation should be conducted by attorneys or non-legal personnel? If outside legal counsel are needed, do you have a team in mind? If your company or organization were faced with a crisis and quickly had to conduct an internal investigation, would you be ready?
When is an internal investigation needed?
A wide variety of situations can create a need to conduct an internal investigation. For example, you may need to conduct an internal investigation when a government or regulatory investigation is initiated; an employee raises a concern; the media begins an investigation; or internal checks and balances ‘red flag’ an issue. Some common examples that can spark internal investigations are:
· A whistleblower complaint filed with the SEC is brought to the company's attention.
· A company receives a government subpoena seeking documents about its sales practices.
· During a company after-work party, an employee drinks heavily, is rushed to the hospital and dies.
· The company receives or is threatened with a shareholder demand or litigation.
· A female employee tells the human resources department manager she is being sexually harassed by a co-worker.
· The family of a nursing home patient tells the local newspaper that the nursing home is overcharging on Medicaid patient bills. The newspaper writes an expose.
· The company CFO's expense reports charges seem unusually higher than they typically were in the past.
· An employee raises a compliance concern through an internal compliance hotline.
What is the purpose of doing an internal investigation?
The purpose of an internal investigation is first and foremost to determine the facts. What actually happened? Who was involved? What may have caused the issue?
But there can be many additional reasons for doing an internal investigation. An internal investigation may also help the company prepare for and defend itself in a lawsuit, if one is filed. It also could help quantify the company’s potential liability in litigation.
It could uncover whether the incident is a limited, one-time event or a systemic, widespread issue that needs remedial or corrective action. An employer may also need to determine appropriate employee disciplinary action.
Who should do the internal investigation?
Who conducts the internal investigation is an important decision. Often it is best for an outside legal counsel to conduct the internal investigation. The government or shareholders may expect or require outside counsel to conduct the internal investigation.
There may be other reasons to use outside counsel. For example, it may be important to demonstrate that the investigation was independently conducted – or conducted by non-company personnel. Or, the board of directors may want outside counsel to conduct the investigation and provide them with advice.
Sometimes particular legal knowledge and experience is needed on an internal investigation, which might not be found within the company; or in-house counsel simply may not have the resources to do the investigation, while simultaneously handling day-to-day legal work.
Knowing when it is appropriate to conduct an internal investigation, knowing the purpose, defining the investigation scope, and deciding by whom the investigation should be conducted are all critical components of this process. By having a process in place well in advance, the company or organization will be in the best position to handle an internal investigation efficiently and move forward with the results.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.