Culture is a function of the quality and character of the web of relationships in any organization. What determines the quality of those relationships is crucial; the quality of agreements between individuals, and between individuals and an organization. The of the Sarbanes-Oxley Act adds a new dimension to the conduct of internal investigations in the corporate sector. The
Sarbanes-Oxley Act of 2002 also known as the
Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called
Sarbox, is a
United States federal law signed into law on July 30, 2002 in response to a number of major
corporate and accounting scandals including those affecting
Enron ,
Tyco International ,
Peregrine Systems and
WorldCom . These scandals resulted in a decline of public trust in
accounting and reporting practices.
The legislation is wide-ranging and establishes new or enhanced standards for all U.S.
public company boards, management, and public accounting firms. Note, however, that it does not apply to private companies. The Act contains 11 titles, or sections, ranging from additional Corporate Board responsibilities to criminal penalties, and requires the
Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law. Supporters of these reforms believe the legislation was necessary and useful while critics believe it does more economic damage than it prevents.
The Act established a new quasi-public agency, the
Public Company Accounting Oversight Board , or PCAOB, which is charged with overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors of public companies. The Act also covers issues such as
auditor independence,
corporate governance ,
internal control assessment, and enhanced financial disclosure.
White collar theft and employee misconduct are an increasingly growing problem in corporate America . Federal, State and other law enforcement agencies are becoming more involved in the investigation of such internal misconduct. Taking steps to protect your organization from internal erosion can not only save money, but can also save an organization from very unfavorable and damaging publicity which impact the bottom line.
An organization confronted with an out-of-the-ordinary allegation of wrongdoing, raised either by an employee or by a third party such as a customer, vendor, or governmental agency, must make prompt and often irrevocable decisions regarding the response to those allegations and the means by which they will be investigated and resolved.
Investigations can be finicky things, but adherence to certain steps can provide for a thorough invesitgation and quality information.
The purpose of an investigation is to gather facts so that an organization can make a credible determination as to what happened in a given situation. If someone is thought to have violated a policy, guideline, or the law, conducting an effective investigation helps the organization reach a conclusion that is based on the most accurate facts available. Having accurate facts are the basis of a sound, legal conclusion.
Any entity conducting an investigation must exercise care to avoid the basis of a litigable claim for defamation, wrongful termination, or other torts from the suspect employee, and the grounds for an alleged statutory or common law violation and emotional distress claims of the complaining individual.
In deciding whether to investigate, employers should be mindful of incidents that are likely to be immediately dismissed but should in fact be investigated. For example, while complaints of sexual harassment by a female against her ex-boyfriend/co-worker or by a male against a female or by homosexual employees may not be the traditional type of complaint, they are nonetheless forms of harassment that may lead to legal exposure. Additionally, complaints of threats and violence that may all too easily be dismissed as horseplay or a "flare-up of tempers" may lead to legal liability under theories of negligent hiring or negligent retention. In short, employers should seriously consider the nature of the allegation when determining whether to launch a full-blown investigation.
In determining who will lead an investigation of an employee complaint or other allegation of wrongdoing, an employer must balance two competing interests: (1) the need for a prompt, thorough, and independent investigation and is perceived as such, and (2) the need for confidentiality, cost-effectiveness, time efficiency, and control over the investigation.
An independent external investigation has a number of advantages over one that is handled internally: (1) Actual and Perceived Objectivity and Independence; (2) Ability to bring specialized expertise to bear on the investigatory process; (3) The respect of those who are the subject of the investigation and those who are potential witnesses; and (4) Credibility of the ultimate determination.
Companies can use financial consultants such as auditors and accountants, legal counsel, or private investigators working in conjunction with either of the above. The use of a professional external investigatory agency such as The Hawkins Group when compared to a completely internal investigation may be more expensive in the short term, but cheaper in the long term in terms of expertise and credibility.
An investigation is effective only if performed promptly. Sitting on a complaint from an employee or customer may create the very lawsuit an investigation is designed to prevent. This is particularly true in sexual harassment cases where an essential element of the case is whether and when the employer investigated the complaint. Courts have acknowledged that employers that have immediately sprung into action and taken effective remedial action when confronted with a problem should not be liable.
In the wake of highly publicized corporate shake-ups, internal investigations have gained national prominence and established themselves as an important tool of management. This trend offers stimulating and challenging opportunities to lawyers, both inside and outside counsel, retained to conduct internal investigations. However, this delicate and complex task carries potential traps and pitfalls for those involved.
Step-by-step guidance On Conducting an Internal Investitgation:
- Determine whether an internal investigation needs to take place
- Conduct effective employee interviews
- Organize and review documents pertinent to the internal investigation
- Understand employees' rights throughout the investigation
- Coordinate parallel criminal and civil proceedings that may arise in connection with or in response to the internal investigation
- Decide whether and what to disclose to government agencies
Understand the context of specialized circumstances in internal investigations, including shareholder litigation, environmental actions, securities cases, and government contract investigations.
Reduce the risk for the company and yourself Conducting an internal investigation can pose a potential risk for your company and yourself. By following these guidelines, an organization can learn how to minimize those risks by:
- Adhering to the guidelines of the attorney-client privilege and work product doctrine
- Effectively and properly conducting witness interviews
- Tactfully reporting the investigation to management by communicating the contents of the report to your client in a way that provides management with the fullest possible information, yet limits dissemination to the narrowest possible audience, and thus minimizes concerns such as leaks and defamation suits
Among the issues that must be resolved in any internal investigation are thoroughness of the process as measured against the allegations made, and confidence in the eyes of those making the allegations that the process has been full, and independent.
In the age of Sarbanes-Oxley, special considerations must be made in the conduct of internal investigations, particularly in the corporate arenas, and the above observations may be of much assistance.
Michael Angelo Massa, JD., is a graduate of Capital University Law School. He has served in a variety of senior capacities and worked has worked as an investigator as well as consultant in the arena of corporate intelligence, employee investigations, and agency oversight. The information for this article was culled from a variety of sources.
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