How To Conduct an Internal Investigation

Companies Need to Conduct Internal Investigations In a Variety of Different Circumstances. Here’s How To Do It.

Timothy E. Allen
Internal Investigation Team Lead
Former U.S. Secret Service Special Agent

As a CEO or other company executive, understanding the bigger picture is critical for making informed decisions. Executives need to be able to act strategically in all scenarios, and this starts with gathering all pertinent information.

In many cases, gathering the information needed to make strategic decisions requires an internal investigation. From suspected instances of employee misconduct to external allegations of securities or accounting fraud, the need to conduct an internal investigation can arise under a broad range of circumstances. When an internal investigation is necessary, conducting the investigation in a structured and systematic manner is critical for ensuring that executives have the information they need to keep their companies moving forward.

Preliminary Questions for Structuring an Internal Investigation

Before consulting with an internal audit firm there are some preliminary questions that the company’s executives and counsel must answer. Answering these questions is crucial for making sure that the investigation is appropriately targeted and that its outcome will not be unduly compromised.

What Is the Focus of the Investigation?

Identifying the focus of the investigation is a critical first step. Companies house an extraordinary amount of data; and, without a clear focus, it will be virtually impossible to conduct an effective investigation with any amount of efficiency.

In some cases, the focus of an internal investigation will be fairly obvious (i.e., when investigating a suspected instance of employee theft). In others, however, identifying the appropriate focus can be more challenging. For example, when facing a federal law enforcement investigation, determining the scope and nature of the government’s inquiry is a necessary precursor to determining what type of internal investigation is needed.

What Is the Goal of the Investigation?

Along with identifying the focus of the investigation, it is also imperative to identify the investigation’s goal. Is the goal to determine whether the company should take legal action? Or, is the goal to determine what defenses the company has available? While the answers to these questions won’t necessarily affect the structure of the investigation or the methods used, they will nonetheless prove critical for making strategic decisions during (and after) the investigative process.

Who Should (and Shouldn’t) Be Involved?

The third key preliminary consideration is deciding who should (and shouldn’t) be involved in the company’s internal investigation—and both elements are equally important. Typically, the individuals involved in conducting an internal investigation will include members of the company’s leadership team and in-house legal department, as well as the company’s IT director, records custodians, and any individuals who have relevant subject matter expertise. These individuals will work closely with the company’s outside counsel to ensure that the investigation has the right focus and conduct the investigation with the company’s specific goal in mind.

Those who should not be involved in conducting an internal investigation include anyone who might be implicated in the alleged misconduct, illegal acts, or other wrongdoing. Of course, in some cases it will be necessary to investigate in order to identify these individuals. In any case, the company’s executives will need to work closely with outside counsel to handle the exclusion of any personnel strategically so as to not compromise the investigation.

Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester

Former U.S. Attorney

Hon. Kevin McCarthy

55th Speaker, U.S. House of Representatives (ret.)

Government Consultant

Mike Pompeo

Of Counsel

Former U.S. Secretary of State

John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara

Federal Appeals Attorney

Nicholas B. Johnson

Former Prosecutor

Roger Bach

Former Special Agent (DOJ)

Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen

Former Supervisory Special Agent (FBI)

7 Keys to Conducting Effective Internal Investigations

With these three preliminary questions answered, the process of conducting an internal investigation can—and should—begin in earnest. While there are several steps in the process that require relevant legal knowledge as well as company-specific insights and technical expertise, there are seven overarching keys to conducting an effective inquiry:

1. Organization

Organization is essential. This applies to all aspects of the investigation, from the investigative team to the process of identifying relevant files. To maintain effective organization, company executives should rely on experienced outside counsel to manage their companies’ internal investigations and provide oversight and guidance throughout the process.

2. File Preservation

File preservation during internal investigations is key for two reasons. First, it ensures that the company’s leadership will have access to as much relevant information as possible. Second, if the issue (or issues) underlying the investigation lead to civil litigation or federal enforcement proceedings, the company will need to preserve all relevant files under its obligation to implement an effective legal hold. When there is a risk that company personnel implicated in the investigation could delete relevant files, it is imperative to preserve these files before making the investigation known outside of the company’s investigation team.

3. File Examination

The process of examining relevant files can vary widely in terms of its scope. When an investigation involves voluminous records, this can be a time and resource-intensive process, and it will often be necessary to rely on document review software. In any case, it should be clear to all individuals involved what records and information need to be flagged, and any concerns should flow to the company’s outside counsel.

4. Interviews

Internal investigations will typically involve multiple interviews. This includes interviews with individuals who are witnesses as well as individuals who are suspected of participating in the alleged improper or unlawful conduct. Each type of interview requires a very different approach, and it is typically most effective to have outside counsel conduct these interviews.

5. Analysis

Throughout the investigative process, the company’s outside counsel should analyze all relevant findings in real time. Oftentimes, information uncovered during an internal investigation will require a shift or expansion of the investigation’s focus; and, in some cases, the company’s goals can change as well. The company’s leadership team and outside counsel should anticipate these potential changes and be prepared to react accordingly.

6. Communication

When conducting an internal investigation, effective communication is paramount. This applies not only to the clarity of communication, but the means of communication as well. When important decisions need to be made at the corporate level, key information cannot get lost in translation. Additionally, all individuals involved must take adequate steps to ensure that the investigation remains protected by the attorney-client privilege.

7. Next Steps

Following an internal investigation, the company’s executives should be able to make informed decisions about their next steps. If they are not able to make informed decisions, then the investigation has not served its intended purpose.

Note, however, that this does not necessarily mean that an internal investigation should uncover the answers to all pending questions. In many cases (particularly those involving internal investigations triggered by external audits, investigations, or enforcement actions), executives will need information that is not available internally. In this scenario, the key is to use the information gathered during the internal investigation to eliminate options and manage risks while recognizing that conducting the internal investigation is just one step in a larger process.

FAQs: Conducting an Internal Investigation

What are the steps involved in conducting an internal investigation?

While every internal investigation requires a custom-tailored approach, there are several steps that should be common among virtually all internal investigations. In general, the major steps involved in conducting an internal investigation are: (i) assembling the investigation team, (ii) identifying and preserving relevant records, (iii) reviewing relevant records, (iv) conducting interviews, (v) documenting all relevant findings, (vi) analyzing the findings from both legal and business perspectives; (vi) determining the company’s next steps.

Can (and should) companies keep internal investigations confidential?

Companies can keep internal investigations confidential, and it will make sense to do so in many cases—at least initially. For example, if certain internal personnel are implicated in the investigation, then making sure they remain unaware of the investigation could be critical. Likewise, as the simple act of conducting an internal investigation can lead to negative public perception, companies will often benefit from maintaining full confidentiality unless and until it becomes impossible to do so (i.e., due to publicized federal allegations).

Are internal investigations protected by the attorney-client privilege?

Internal investigations can be protected by the attorney-client privilege. When conducting internal investigations, it is up to both the company and its outside counsel to take adequate steps to ensure that the privilege remains in place.

What is the right timing for conducting an internal investigation?

In general, the sooner a company can conduct an internal investigation, the better. When an issue has the potential to lead to business losses, commercial litigation, or serious civil or criminal allegations, company executives need to quickly gather the information they need to make informed decisions.

Do companies need to engage outside counsel to conduct internal investigations?

Given the risks inherent in situations requiring internal investigations, companies needing to conduct these inquiries should engage experienced outside counsel. Experienced outside counsel will be able to structure the investigation appropriately, provide guidance for maintaining the attorney-client privilege, oversee the entire investigative process, and help the company’s executives act with the company’s best interests in mind.

Speak with an Attorney Experienced in Conducting Internal Investigations at Oberheiden P.C.

If you have questions about conducting an internal investigation, we encourage you to contact us promptly for more information. To speak with a senior attorney at Oberheiden P.C. in confidence, please call 888-680-1745 or request a complimentary consultation online now.