Laying the Groundwork: The Importance of a Preliminary Investigation
Advice from Timothy L. Mohr of BDO Consulting
"My boss asked me to change the numbers on our company's financial statements before the Board meeting next week." A tip, reported to your company's anonymous hotline by a nervous administrative assistant, puts the proverbial ball in your court. A hotline report may represent the very first lead regarding a potentially fraudulent act. Once your company has been informed of such an act (or of some other unethical or illegal act) it is your responsibility to take swift, smart action - action that starts with a well-planned preliminary investigation.
A preliminary investigation consists of a series of actions designed to gather information, determine the validity of a claim and lay out the logical next steps. In the following excerpt from questions posed by corporate executives during a seminar on September 20th, 2006, Timothy L. Mohr shares some of the knowledge he's gained over the past 16 years of conducting investigations. Mohr is a Certified Fraud Examiner and the Director of BDO Consulting's Employee Misconduct Investigation Practice. In the following interview, he gives his advice on investigating tips received from a hotline.
Q: Are there proactive measures our clients can take before they receive a hotline tip?
A: Absolutely! Organizations should start with an operative and user-friendly path for reporting a tip or complaint and make sure there's a standardized system for responding efficiently and appropriately to employee tips or complaints, depending on the nature of the allegation.
Then, organizations should establish a written policy for the conduct of an investigation. You need to determine who will be responsible for the investigations - it's a good idea to delineate this for each possible type of incident that could arise. The notification of appropriate parties, whether internal or external, should also be predetermined. This will reduce the risk that the investigation will be conducted in an unlawful or disorganized manner. There's not a set blueprint for conducting an investigation, because each one will be different - but at least you can have this process already determined.
Q: What is the first thing that should be done when a hotline tip is received?
A: In terms of individual steps, you first need to determine whether or not the tip you've received is valid and requires an investigation. The designated internal investigative committee should conduct this preliminary investigation - under the oversight of the board's audit committee - to accomplish a timely and efficient assessment of allegations received through the hotline. Findings should be reported directly to the audit committee but not to members of management, who may be inclined to minimize or sanitize the magnitude of the allegations and findings.
Q: What is the purpose of conducting a preliminary investigation?
A: You need to obtain evidence to corroborate or disprove the allegations through a timely and cost effective review of documents, witnesses, etc. It is imperative, during the preliminary investigation to assess the likelihood and potential impact of the allegation on the organization, its financial statements and related public disclosures. Organizations can save time and money when preliminary investigations are conducted. False allegations can be refuted and the organization can avoid costly and unnecessary formal audit committee investigations.
Q: What happens when the preliminary investigation warrants a formal investigation?
A: Depending on the severity of the allegation, retaining special counsel may be appropriate, but each case will need to be handled individually. A formal investigation warrants a higher level of scrutiny and extensive interviews. Documents and electronic data need to be evaluated. This should all be done with the active oversight and monitoring by the audit committee.
Q: From your perspective as an investigator, do you have any other advice for our clients about their hotline program?
A: There's one thing that organizations could do to enhance their hotline. If a person provides his or her name, you could have the interviewer request that the person prepare a written statement, so there will be an exact record of the nature, scope and breadth of the allegation. Just as an added extra piece of information.
Q: What constitutes an effective whistleblower hotline program?
A: First and foremost, a successful program requires an operative and user-friendly path for reporting a tip or complaint. Second, the organization's management and Board of Directors must effectuate a standardized system for efficient and appropriate response and investigation of employee tips or complaints, depending on the nature of the allegation.
The importance of a good preliminary investigation can't be overemphasized. And framing up a process before a tip ever surfaces can not only save time and money but also can provide assurance that every allegation is appropriately addressed. Want to learn more? Click here to listen to a replay of Mr. Mohr's recent online seminar, "Investigative Tips for the Non-Investigator", offered to clients of The Network, a premier provider of anonymous hotlines, in September 2006. The online seminar offers valuable tips for both industry newcomers and seasoned veterans.
Timothy L. Mohr, CFE, is the Director of BDO Consulting's Employee Misconduct Investigation Practice. Mr. Mohr has over 16 years of experience investigating allegations of employee fraud, irregularities and workplace incidents. He has spent his career providing services to a variety of industries as an in-house investigator and as a service provider.
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