Nearly half of all occupational fraud is committed by non-management level employees, causing a median loss of $130,000. Owners and executives account for only 19 per cent of cases, but the median losses are much higher, at $850,000.
Similarly, harassment and other misconduct at the C-level can cause more damage than at the employee level.
The higher the fraudster’s rank, the greater the loss from fraud, but money is only one of the losses that occur when a member of the C-suite is behaving illegally. The company’s reputation and culture are also damaged.
An internal investigation involving executives, such as a CFO or VP, must be conducted differently than a normal investigation to minimize losses and damage.
Case management software helps you conduct better ethics & compliance investigations. Download the eBook to learn why.
Key Considerations of an Internal Investigation Involving the C-suite
An internal investigation involving the C-suite is different from an internal investigation where the accused is a low-level employee. The former will be complex, it will likely have many layers of conflict of interest and there will be psychological barriers involving bias and loyalty.
An internal investigation involving company execs needs to do more than establish the truth. The investigation must examine the facts of a situation without unnecessarily damaging anyone’s reputation.
The investigator must be able to do all this without being influenced by the fact that the accused is potentially responsible for much of the company’s value or success. Power can make people believe they’re invincible or immune to consequences. This isn’t true and it’s an investigator’s job to not let that same power sway them.
Internal Investigation Steps
A proper internal investigation is thorough, decisive and quick every step of the way, from identifying the scope to reaching a conclusion supported by facts. When you’re investigating high-stakes allegations, it’s even more important that you do the job right.
When a high-ranking exec is the accused, there are a number of special steps to consider. Read on to learn what those are.
Internal investigations can be time-consuming and expensive. They often disrupt the normal office routine. Depending on the allegations, they may also negatively affect your organization’s reputation.
However, failing to take action against and outright dismissing allegations can lead to significant legal trouble. When deciding whether or not to conduct an internal investigation, remember it is your duty to take concerns seriously, investigate complaints and reduce future risks.
For allegations concerning high-ranking execs, a proper internal investigation does far less damage to a company than harassment, fraud, or any other illegal behavior.
Choosing who will manage and supervise an internal investigation is a major task, especially when the investigation involves the C-suite. There are many options, each with advantages and disadvantages.
Your HR Department
One option is to use an investigator from the company’s human resources team. HR is usually the first to be contacted with allegations and may be a good choice since they know the complainant, the accused, the company’s policies and the basic investigation procedure.
However, this isn’t always the best option for an investigation involving the C-suite. The investigation process may be too complex and HR investigators may not have the experience and skills to handle sensitive, high-stakes investigations.
Your In-House Legal Counsel
Compared to an outside investigator, having in-house legal counsel conduct the investigation is less expensive and more efficient. In-house means they are familiar with the company, industry and involved parties.
Again, depending on the allegations and accused, using in-house legal counsel may not be wise. They may not be comfortable conducting the internal investigation due to a conflict of interest (regarding the outcome of the investigation) or potential biases.
Often, the best choice is to hand the investigation over to an outside professional.
An Outside Investigator
For internal investigations involving a member of the C-suite or potentially illegal behaviors, it’s best to hire outside help for two reasons.
The first reason is that an external investigator won’t feel the same pressure associated with an investigation involving someone vital to the organization. They will be able to stay neutral and conduct their work without the same biases as an internal investigator.
The second reason is that an outside expert will ensure the investigation is seen as objective and credible. If the allegations involve management or senior executives, it would make little sense to have their subordinates conduct the investigation.
Going beyond the investigator’s relations with the company, this person must be skilled. They must know how to defend against many outside influences, such as lawyers and the media. They should be an expert in conducting interviews and understand how to build rapport with uncooperative or nervous witnesses.
The chosen investigator will then create a work plan. This document will keep the investigation on track by outlining the scope, major tasks, involved parties and expected deadlines.
The work plan will likely change throughout the course of the investigation. As new information comes to light, the scope, and potentially the purpose, may need to change.
Not sure how to start your work plan? Use this Investigation Plan Template as your outline.
The first draft of the work plan will explain:
- The purpose of the investigation
- The scope of the investigation
- The allegations or the “triggering event”
- Deadlines (e.g., Securities and Exchange Commission filing dates)
- Details about the lead investigator
- Details about the investigation team, if possible
The next major stage of internal investigations revolves around evidence. Depending on the allegations, you may have already preserved initial evidence. It’s important to obtain evidence from the scene, if there is one, immediately upon deciding an investigation is necessary.
If in doubt, err on the side of preservation. As discussed above, you may need to broaden the investigation’s scope as additional information becomes known. Even if evidence doesn’t seem relevant now it may become relevant in the future.
For high-stakes internal investigations, it’s important to suspend any document destruction policies, including “auto-delete” features on electronics. An office worker shredding a key piece of evidence could throw off the entire investigation, regardless of their intentions.
Create a list of important but easy-to-retrieve documents. Then, collect them. The list should consist of documents such as personnel files, organizational charts, relevant incident reports, warning letters, company policies and more. Make sure each piece of evidence, digital and physical, is properly stored.
Pro Tip 1: Use Software
For a high-stakes internal investigation involving a member of the C-suite, it’s valuable to use technology tools such as case management software.
Software allows you to upload and store all evidence in a single database. Time-saving tools such as the search bar streamline the evidence review process. For cases with hundreds of pieces of evidence, being able to find and pull up the right document is invaluable.
Click here to learn more about using case management software in your investigations.
Ideally, the work plan from the beginning of the investigation process will have a rough list of witnesses to interview. Decide the order of the interviews. Usually, the complainant is first and the accused is second.
While setting the sequence, remember to interview each person separately and privately. Deny any requests for group interviews, as other people’s views can taint the witness’s recollection.
Draft an outline for the interviews. Jot down the key topics you want to discuss and write out any important questions you shouldn’t forget to ask. A good outline will help you make sure the interview stays on track and covers all the necessary subjects.
During the Interview
As you sit down, explain the purpose of the interview. Explain the rules around confidentiality and retaliation.
Begin asking the questions according to your outline. Avoid closed questions, leading questions, myths and stereotypes. Say everything objectively; you don’t want to taint the interviewee’s memory by retelling events with blatant bias.
If the witness refuses to cooperate, consider the possible reasons why. An internal investigation involving a high-ranking exec is stressful. They may fear retaliation, or they may have something to hide. On the flip side, they might not understand the interview’s purpose and are therefore unintentionally adverse.
To make sure the entire interview is fruitful, remember to take detailed notes. These types of internal investigations can be long, complex and convoluted. Memorialize the interview so you will be able to remember it far into the future, if necessary.
When you are in a position to confidently describe what occurred, address whether or not a law was violated and defend this decision with fact-based proof, it is time to conclude the investigation.
For high-stakes misconduct, it’s important to consider any third parties who should know about the investigation and your findings in advance.
If the investigation involves fraud, financial control or accounting, contact auditors. If a law was broken, law enforcement may offer lenient treatment for self-reporting violations of law. Speak with the PR team about offering details to shareholders or the public.
A written report is always required for investigations, especially those involving the C-suite. The investigation report should document the allegations, the involved parties, the evidence, details about the interviews and an analysis of all this information to reach a conclusion. Once the report is written, share it with the necessary parties.
If you’re not using software, and have to write the report manually, use this free Investigation Report Template.
The last step is remediation. The Association of Corporate Counsel warns that if the investigation uncovers major problems, you are duty-bound to fix them by creating and implementing a robust remediation plan.
A risk assessment of the C-suite is a great place to start. Consider the potential for misconduct by higher-ranking employees. Are there controls in place to mitigate this potential? If not, what checks and balances can you put in place to mitigate it?
Another option for remediation is strengthening annual training for the C-suite. Often, high-ranking executives think they can skip out on training because the message doesn’t apply to them, they have more important things to do, or they’ve completed the training countless times already. Don’t let this happen. Hold the C-suite accountable, make sure they all participate.
Don’t forget also to reflect on the investigation itself. Was it effective? Are there new steps you should implement that could help reach a conclusion faster? Revise, edit and modify processes as needed.