A Multidisciplinary Approach to Corporate Fraud Investigations

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Sidney Green Street was not the most famous detective on the silver screen. Humphrey Bogart was. It is famous portrayals in popular movies, television, and books that have given virtual folk hero status to the lone single-minded investigator. Yet the image of the “private eye” in a dogged hunt for evidence, unconcerned with collateral consequences, and with only a minimal regard to the expenditure of resources has no place in a corporate environment.

Tainted products, aggressive sales people, consumer and management fraud, labor relations, purchasing agents in foreign markets, and the crisis de jour are just a few  the trigger points, external and internal, that require a crisis management approach. And the first rule of crisis management is much like the old Dragnet series suggests, “Get the facts” and make a plan.

The question is, where does a professional investigations unit fit in?

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Professional investigations teams provide insight into areas where historically loss prevention and, more broadly, retailers in general have not been. In today’s chaotic mix of legal and regulatory issues, consumer activism, tabloid media, and political agendas that might well affect a company’s reputation, profitability, and, perhaps, its very survival, the collaboration of a number of disciplines is essential to ensure the effective management and timely resolution of high-priority investigations.

The Investigative Crisis

No one article can comprehensively discuss how to find your way through a major high-profile investigation. My hope is to provide some insights into the crisis management approach to major investigations and, more specifically, the creation and management of a multidisciplinary team of professionals that can work their way through the larger issue often not seen. The old saying, “It is difficult to drain the swamp when you are up to your waist in alligators,” is a good metaphor to remember when dealing with the investigative crisis.

Those familiar with the business literature of crisis management will recognize the concept…one that saved the reputation and profits of a few high-profile companies. A classic tale of crisis management is the famous tainted Tylenol episode of the eighties. In fact, it has become a much-studied case when dealing with crisis management as a whole, and more specifically with investigative crises. Unfortunately, the same individuals charged with leading the company through a crisis will often fail to perceive that this exact methodology lends itself well to  complex or high-profile investigations. Why that failure of perception exists is not quite clear. After all, both the symptoms and objectives of a crisis and an intensive investigation tend to be quite similar. Both seek not only to identify and eliminate the cause of the crisis or suspected illicit behavior, but also to prevent future occurrences, and minimize collateral damage ancillary to the fact-finding processes.

Moreover, both are ultimately a test of the company’s resolve to act as a responsible corporate citizen. Appropriate action might have short-term, adverse affects on business continuity, smooth operations, succession planning, and image. It might in some cases result in potential civil or even criminal liability. Yet, the consequences of behaving like the proverbial ostrich, eventually becoming mired in the paralysis of inaction, or conducting a superficial investigation, may prove far more serious. Therefore, the correct decision is to act appropriately…but strategically…using a method designed to minimize the adverse consequences.

Investigative Planning

Some time ago, I was brought in on what turned out to be a major investigative crisis. It seemed that an individual who was both “ethically challenged and chronically misunderstood” was attempting to sell a string of software code to a foreign commercial bank that would help redesign the way that traders traded stocks and bonds on the floor of the exchanges. The problem was that it wasn’t his to sell. He had wrongfully obtained it as a result of his programming work as a contractor on the overall project. As we treaded lightly through the world of forensic computer analysis, addressing issues such as who owns what in the cycle of intellectual property, it became clear that the group dynamics pushed us in different directions. If we had been without an investigative plan, disaster would have been imminent.

An investigative plan is critical before the fact-finding process is initiated. The concerns considered in the formulation of the plan are suggestive of at least some of the disciplines to be represented on the team.

Clearly, legal demands associated with the investigative process need to be understood and scrupulously followed. This includes federal and state law, applicable regulations, labor contract provisions, principles of corporate governance, and human relations, not to mention compliance with the myriad of corporate internal policies, much of which can be inconsistent and even contradictory.

Beyond that, equitable and fairness issues must be of major concern. The investigation has to be fair in effect. More importantly, management, employees, and authorities must perceive it to be fair. That often means approaches used in one investigation involving serious misdeeds may be just as legal, but yet, inappropriate, in an investigation involving minor infractions or policy violations.

The process of investigative planning also requires an analysis of all of the possible approaches to the problem (a concept commonly referred to as full field investigation). It is amazing how many investigations are conducted in a manner designed to uncover only those facts tending to support the investigator’s initial conclusions. The fear that “a gang of ugly facts will beat up the beautiful theory” often results in relevant facts being discarded, and alternative, but valid theories, being ignored.

An investigative plan must take into account the reputation of the company and of its employees. It is a fact that the media tend to report embarrassing or negative information, but believe that the opposite is simply not news. Consequently, corporations have suffered from severe myopia due to the fear of publicity, especially when dealing with high-profile investigations. Fear is a critical emotion for survival, but it should not determine the outcome of the process. Fear should alert the company that the potential for adverse publicity needs to be considered and managed. Plan the positive message from the onset, whether it is responsible corporate behavior or intolerance of illegal activity at any level.

By employing a holistic methodology when conducting complex investigations, efficiency is maximized and detrimental effects minimized.

Personnel actions against the individuals within the corporation may be necessary at any time during the course of the investigation. The timing of such actions may have an impact on both the investigation and the business itself. Which action is given priority is not always a foregone conclusion. The impact on the business may be especially significant if the employee is a senior businessperson. A succession plan may need to be designed and implemented and the notice of the decision  is seminated. These should not be done at the last moment, but as part of a well-conceived strategy. Termination versus separation has practical as well as strategic consequences.

No doubt there are a number of other issues that can be added to this list. After all, the corporation does not act in a vacuum. The corporation may be selfless and willing to suffer financial consequences, but it must take into account the needs of its vendors, customers, and overall constituency.

Necessary Skill Sets

In the investigations business, it is important that the major investigation is conducted with the right team of individuals. This is especially true in an environment that is conducive to awarding responsibility to those individuals only vaguely familiar with the craft from watching reruns of “Columbo.”

For example, in conducting an investigation into a vendor who mistakenly “forgot” to provide a retailer with the credits that were due them, consideration had to be given to the right individuals who would lead the investigation. The vendor developed a unique way of turning the negative balance in their accounts receivable to a positive value in their investment schedule. Truly, the transition from debit to credit rivaled an evolutionary process that would have made the folks at CrazyEddie or even Enron proud.

When planning the investigation, there was much discussion of who on the business side of the house the retailer would “let in” on certain crucial elements of the ongoing investigation. They were truly torn between looking for a partner, so they could understand the nature of the business, or excluding a suspect, who may leak crucial details of the investigation to the wrong folks. Knowing who to include and who to exclude is probably one of the more difficult tasks. However, this is one of the basic issues to consider.

It is virtually always the case that the core members of the team have investigative, legal, and personnel management skills. Supplemental skills frequently desired include forensic auditing, finance, computer expertise, public relations, employee relations, business management, and international transactions.

Whether or not those skills come from inside or outside the organization is not always readily discernible. The need for an independent and totally objective outsider must be considered against the benefits derived from the use of insiders, those being knowledge, cost savings, and commitment. Generally, the self-directed  multidisciplinary team will possess the requisite knowledge and experience to decide whether it should be the primary investigative resource, the manager of external resources, or part of a hybrid team.

Legal Skills. In some ways, I may have been overly simplistic in suggesting that “legal skills” are needed on the team. While that may be technically true, the type of legal skills is what is relevant. And they are the types of skills not always readily discernable in an individual attorney.

The attorney must be familiar with the legal aspects of both investigative procedures and the particular business operation under review. For example, federal law may allow one-party consent recording of conversations, while a particular state may prohibit the same conduct. The same may be true for other available remedies, both prospective and remedial.

The attorney should have a personality and good judgment. The personality should be controllable from pleasant to aggressive as the facts or situation warrant. In essence, they are the same skill sets that are valued in investigators and managers, a common-sense ability to adapt to the exigencies of the moment. Nothing interferes with the team approach more than a lawyer who constantly opines on why something cannot be done, rather than determining how compliance with applicable laws and regulations can be achieved.

Clearly, a discussion of legal privileges in the context of complex corporate investigations, including the attorney-client, work product, and self-evaluate, is too complex and lengthy a subject to discuss here. Scholars and practitioners have extensively written and debated about privilege issues. I know only that the privileges that do exist when the attorney acts in contemplation of litigation may not be available when the attorney takes on the role of investigator or businessperson. The expansion of the attorney’s traditional role in the investigative process may prove counterproductive…especially if it is done merely to attempt to protect the corporation from disclosure of certain conversations and documents.

Investigative Skills. An experienced investigator is the second mission-critical specialist. Not every former law enforcement type is suited for such work. Indeed, in many cases, formal law enforcement training may not provide the flexibility necessary to the investigation. Business acumen is critical, however, since it will enable the investigator to focus quickly on the necessary elements of the business operation to be scrutinized.

The investigators should be proficient in fact-gathering methods, public record and online database research, physical and electronic surveillance techniques, computer searches, as well as being an able interviewer. The latter skill is crucial. Interviewing witnesses and suspects in complex investigations requires extensive training and experience, diplomacy, exceptional listening skills, a pragmatic understanding of psychology, and a large dose of common sense.

The investigator must also have a good relationship with essential individuals within the company, responsive contacts in law enforcement, and access to private investigative and specialized support. Moreover, the investigator needs to recognize the limits of his or her abilities. It is often only the best of investigators who know when and where to obtain the experts to conduct certain forensic and technical aspects of the investigation. Delivering a product and supervising experts is, in itself, a skill.

HR Skills. The human resources professional is the third mission-critical specialist who is essential to the core multidisciplinary investigative team, providing insights and expertise regarding the policies and rules of the company. Without such an individual, it would be virtually impossible to develop succession plans, undertake temporary or permanent personnel actions, and understand the options available to the team and management under the applicable conditions. The human resource member of the team will also be in the best position to guide the company in its disclosures to employees at the conclusion of the investigation.

Other Skills. Potential team enhancements can come from other disciplines within the company, such as public relations, investor relations, or compliance. However, these additional skill sets must be appropriately utilized within the context of the matter under review.

Public relations is a good example. Managing PR for a company often involves promoting favorable press relative to a company’s goods or services. Managing the media in a crisis situation is a completely different animal. When network radio and television descends en masse on the corporate headquarters front lawn, it takes special skills and experience to meet that challenge. Because this is not a common occurrence for most companies, many PR professionals don’t have the appropriate experience. In such cases, it may be appropriate to enlist an outside firm who specializes in crisis communications.

Investigative Success

If the days of the lone, dogged investigator tirelessly solving a crime in the face of multiple ongoing obstacles were ever truly reality, they should be relegated to a bygone time and the movies. It has no place in today’s business world.

The collaboration of a number of disciplines is essential to ensure the effective management and timely resolution of high-priority investigations.

Instead, the use of appropriate skills and disciplines, a cooperative attitude, and the early development and constant rethinking of strategic and tactical plans inure to the benefit of the investigator, the team, the company, its employees, and the public. By employing a holistic methodology when conducting complex investigations, efficiency is maximized and detrimental effects minimized. The use of a multidisciplinary team brought together to form a collaborative, cohesive unit accomplishes these goals, and that is what it is all about.

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