When to perform an internal investigation
There are risks to conducting internal investigations, warns former federal prosecutor Robert Litt of the Washington, DC, law firm Arnold & Porter. But he says the benefits often outweigh those risks.
"An investigation might spark the government to look into something they did not even know about," he warns. Likewise, he says it is very difficult to conduct an internal investigation without any word of it leaking out. Also, providers might discover that what they thought was a very small problem is a much larger problem.
Those caveats aside, Litt says providers are well served to launch an investigation when they smell trouble. "My view is always that you are better off knowing than not knowing," he asserts. "If there is a problem out there, the likelihood is that sooner or later it is going to come to light."
According to Litt, investigations can be triggered by a variety of external factors, including government audits, qui tam or other lawsuits, newspaper articles, and search warrants or investigative demands.
In other instances, he says, providers may have to perform an internal audit because of news reports that a major competitor with similar business practices is under investigation. Other internal triggers can include internal audits, calls to your hotline, or complaints by employees.
"It is very important to take a complaint by an employee seriously," says Litt. "You want to at least look at it and let the employee know you are doing something about it."
According to Litt, a well-organized compliance program can help providers decide when to conduct an investigation and how to structure it. A set of procedures that establishes triggers for an internal investigation also can help guide the investigation, he says.
"If you rely on pre-existing rules in deciding whether or not to conduct an investigation, you are less vulnerable to somebody saying you were trying to sweep something under the rug, because you can point to procedures," he adds.
A set of established procedures also will prevent ad hoc, crisis-driven decision making. "If you are making all of these decisions on-the-fly, in the face of newspaper articles, you are more likely to make the wrong decision than if you have figured out in advance how to conduct an internal investigation," he explains.
The fundamental goal of an investigation is to find out what happened, Litt says. First, you want to find out if there is a problem at all, he says. Then you want to estimate the size of the potential liability. "You can’t know how much money you may have to pay as a result of the problem until you have done an investigation to figure out the scope of the problem," he says.
Litt says providers also have a fiduciary responsibility to shareholders to try to protect the corporation in every way possible by dealing with wrongdoers. "If you have bad apples, you will want to get rid of them," he asserts.
Then you’ll want to fix the system so it does not happen again. That includes both disciplinary actions and new processes and controls, if necessary. "At the stage where you are negotiating with a government agency, it is a very helpful thing to be able to say, Here are the steps we have taken to make sure it does not happen again,’" he adds.
According to Litt, an effective investigation also will help companies defend themselves against an investigation or litigation by controlling the flow of information to the government. He says there are legitimate steps that can be taken to make sure the government gets all the facts you want them to have in addition to the facts they get on their own.
Performing your own internal investigation also will help you keep track of what the government knows and what it is learning from its investigation. "I can’t tell you how important it is to know what the government knows," he asserts. "There is nothing more embarrassing than having a lawyer go to a prosecutor and make a pitch based on certain facts and having the prosecutor present evidence that undercuts your assertions."
An internal investigation also will help companies present the facts in the most favorable light, not only to the government but also to the public. "It is a fact of life that many of these investigations are accompanied by a lot of publicity," he explains. "Companies are going to want to get their own side out."
Another goal of an internal investigation is to maximize the opportunity to protect the institution by using the attorney/client work-product privilege. The work product applies not only to communications between lawyers and clients but to the lawyer’s work. However, in order for the work product privilege to apply, the lawyer’s work has to be in anticipation of litigation, Litt adds.
A final goal of an internal investigation is to minimize the consequences of whatever wrongdoing took place. "You want to avoid or prevail in shareholder or qui tam litigation," says Litt. Companies also may be able to convince the government not to proceed with a case or minimize the sentence under U.S. sentencing guidelines. Voluntary disclosure may also help prevent suspension or disbarment, he adds.
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