Corporate Investigations: What does an internal investigation look like?

When a company identifies an internal issue, without all the facts available, deciding how to respond can be problematic. This could relate to an internal dispute, reputation management, or inappropriate staff behaviour; concerns about a supplier or business partner; to internal fraud, corruption, stock misappropriation or counterfeited goods.

Responding to such issues often involves diverting valuable time and resources from normal operations. The aftermath of an incident can also have a negative impact on an organisation - a reduction of shareholder value; issues surrounding cash flow due to unforeseen costs, expenses and loss of trading; and reputational damage.

Whereas companies that have a robust crisis management plan in place stand a much better chance of safely navigating the issue – even boosting reputation in instances where effective leadership of senior management has been demonstrated.

However, making a strategic decision on how to respond, and how to proceed can be very difficult without knowing the full details of the incident. An internal corporate investigation can assist the senior management in understanding what has taken place, and guide their decision making process on how to navigate through a crisis, resume operations quickly and help their business recover.

Who should investigate?

It is understandable why an organisation may be reluctant to bring in an external party to investigate an internal issue – there are likely to be concerns about exposing issues within an organisation to another party.

However, using a trusted partner, with all the available tools and resources, gives the best chance of quickly identifying the cause of the problem. In many cases, a fast response is vital.

Working closely with insurance companies can be a huge benefit – this will often save time, money, and the correct experts can be appointed quickly and effectively. This has the added benefit of mitigating the risk of losses, and a consultative approach, with the insurer post incident, can mitigate the risk of further losses in the future.

Furthermore, having an investigation conducted by a trusted external partner can also be extremely beneficial - appointing an individual within the company to investigate may ostensibly save costs, however there may be unconscious bias, concerns about existing relationships, or simply they may not be equipped or trained to conduct an investigation. An independent partner, conducting an objective investigation, will give the senior management the clearest picture of what has taken place, and allow them to proceed in the most appropriate manner.

What does an internal investigation look like?

No one investigation is the same; the enquiries will depend on the organisation itself, the issue at hand, the level of loss or exposure, corporate or personal sensitivities, and the desired outcome.

However, the ‘building blocks’ of an investigation rarely change; these are explored in more detail below. The exact enquiries, and the range and scope of these, will really depend on the seriousness of the incident, the potential impact, and the financial loss. Ensuring an investigation is proportionate is a key consideration, as there must be a ‘return on investment' at the conclusion, even if this is not monetary.

In many cases, the desired outcome is not known at the start of an investigation. However, if criminal activity is suspected, then it is worth considering conducting an investigation in a way that can lead to a criminal prosecution. This manner of investigating is extremely robust, as this can be relied up on in Crown Court in the UK, which has a significantly higher burden of proof and standard of evidence gathering than other proceedings.

Starting with this in mind is the best way, as criminal proceedings can be bought if required – if not, then the material can be used in other proceedings as required.

Witness enquiries

In all cases, evidence and information, and understanding the background and context of an incident, comes from people. Identifying those individuals who can provide information, and those that are suitable to speak with, is key. Conducting discreet and independent interviews is vital in understanding what has taken place. From this, if needed witness statements can be obtained.

Considering what is required to be disclosed to the company is also important – this is either to ensure the integrity of their evidence in criminal court, but also can be a consideration to ensure those individuals feel they are able to provide full and frank information without concern for their positions.

Documentary review

In most cases, corroborating the witness accounts will be done by reviewing and producing pertinent documentation. This can involve reviewing invoices, emails, bank statements, and any other pertinent material. Identifying evidential material will be crucial, and this can be produced as exhibits to support proceedings.

Digital Forensics and E-Discovery

In some cases, it is not clear what has taken place, the extent of the issue, or who is involved. Sifting through emails, online documents, and other data can be extremely time consuming, inefficient or ineffective if done manually.

A digital forensics and review strategy can quickly analyse large amounts of data, identifying patterns and trends, and help get to the root of the problem. An E-discovery platform can streamline this further, reducing document review time and quickly identifying key evidence.

Forensic accountancy

This often goes hand in hand with the digital forensics stage. If a fraud is identified or considered, then independent forensic accountants can review the financial systems in place, to understand what has occurred, the mechanics of a fraud, who is involved and where funds have been diverted. This will be a key basis for any criminal or civil fraud response.

Covert investigation

While not always required, covert investigation can be a fantastic tool. In many cases, fraudsters or other hostile actors are aware of leaving an audit trail which could implicate guilt or illicit activity.

Where proportionate, covert investigations can gather overwhelming evidence quickly and effectively. This can involve surveillance, test purchase operations, or even the use of undercover operatives and human source enquiries. A covert investigation strategy would be needed to make sure this is proportionate, legal and targeted, to reduce costs and ensure this gives the best chance of success.

Open and closed source research

There is a huge amount of data available, that will assist an investigation and decision making process. Some of this is readily available, and others requires a wide range of datasets. Searching, analysis and targeted enquiries can provide a huge amount of valuable information, and is vital in almost every investigation.

This can be used to support enquiries, understanding more about an individual, obtaining evidence of criminal activity, identifying red flags and areas of concern, identifying assets that can be recovered, or understanding more about an organisation or entity.

What are the risks of not conducting an investigation?

It is natural to be reluctant to consider instructing an investigation to be conducted – a common reaction is to avoid the issue, assume it will go away, or to conduct limited enquiries which may not get to the root of the problem.

Failure to investigate can lead to issues continuing or getting worse, and ultimately have a significant impact on the company, individuals and reputations.

For example:

Increased Risk of Fraud

Without investigations, companies become more vulnerable to fraudulent activities such as, theft, and financial crimes. This can result in significant financial losses and damage the company's financial stability. If not tackled, this can lead to the problem continuing, and encourage repeat offending.

Compliance Violations

‍Lack of corporate investigations increases the likelihood of non-compliance with laws, regulations, and industry standards. This exposes the business to potential legal and regulatory penalties, reputational damage, and loss of customer trust.

Unaddressed Misconduct and Harassment

Without investigations, allegations of misconduct, harassment, and unethical behaviour within the organisation may go unchecked. This can create a toxic work environment, lower employee morale, and increase the risk of legal actions against the company.

Poor Decision-making in Partnerships

Failure to conduct due diligence through investigations can result in entering into partnerships, mergers, or acquisitions without a comprehensive understanding of potential risks. This increases the likelihood of being involved with entities that have undisclosed liabilities, legal issues, or conflicts of interest.

Inadequate Risk Management

‍Without corporate investigations, businesses may overlook or underestimate risks and vulnerabilities in their operations. This leaves the company exposed to potential threats, including cybersecurity breaches, intellectual property theft, and other operational risks.

Damaged Reputation

‍In the absence of investigations, allegations of misconduct or unethical practices may circulate externally, leading to reputational damage. This can result in a loss of customer trust, decreased market value, and difficulties in attracting investors or business partners.

Weakened Legal Position

Without the support of thorough investigative reports and reliable evidence, companies may face challenges in legal proceedings. This weakens their position in disputes, compromises their ability to defend against allegations, and limits their options for pursuing legal action.

Overall, the failure to use corporate investigations as a tool can expose businesses to financial losses, legal liabilities, compliance violations, damaged reputation, and a compromised ability to make informed decisions and mitigate risks effectively.

Resolution

Ultimately, corporate investigations lead to a resolution or outcome. Having all the available facts, and evidence in a format that can be used in any proceedings, allows senior management to decide on how best to proceed. This can be low-level, and dealing with issues internally, to large scale litigation and prosecutions.

Some options are considered below:

Internal learning – in minor cases, an issue may be identified following an investigation. Senior management may decide to learn from the situation, and adapt policies or procedures to make sure this does not happen again.

Disciplinary – in more serious cases, the evidence gathered may be used internally, to conduct disciplinary hearings, terminate contracts, or change policies.

Strategic changes – depending on the findings, then senior management may make business decisions, such as changing provider or partners to avoid reputational risks.

Civil litigation – depending on the results of the investigation, a consideration may be given to commencing civil proceedings. This may be to recover stolen funds, or seek compensation or other damages.

Police referral – in serious cases, where criminal activity is identified, presenting the evidence to law enforcement may be appropriate, or required. There is no guarantee that police will assist, however in some cases a criminal prosecution would be the appropriate decision.

Private Prosecution – where a criminal prosecution is the desired outcome, a private prosecution may be appropriate, particularly if the police decline to assist. This involves the same process as a state prosecution, with the suspect facing a criminal trial and possible jail if convicted, however the police and Crown Prosecution Service are not involved.

Whatever the desired outcome, a thorough, independent and objective investigation will be vital – this will assist in deciding on the best way to proceed, ensuring that any decision or litigation is based on robust, reliable evidence.

At AnotherDay, we have extensive experience in conducting corporate investigations, advice clients on crisis management and response, and work alongside specialist lawyers to ensure the best chance of success – allowing the business to get back on track. Contact our team today to find out how we can help your organisation.