Part 1: How Boards Can Effectively Oversee an Accounting Investigation
- Aug 10, 2017
- Marc Fogarty
Today, employees have the opportunity to report alleged violations against their company through whistleblower programs. Wrongdoings can range from failure to follow company policies to criminal acts and fraud.
Most publicly held and private companies develop these programs to help ensure that issues and concerns are brought to the attention of management and the board. Whistleblower programs provide employees with an accessible route to voice concerns while protecting those employees from retaliation and safeguarding their anonymity. These programs are typically set up with a designated hotline where employees can anonymously express their complaints and submit reports of misconduct. After a complaint has been filed, someone independent of the company, such as the company’s audit committee chair or his or her designee, will review the complaints to bring forward to the company.
The following are key considerations for boards to consider in properly handling whistleblower complaints:
- Do be prepared. Not all complaints need to be handled in the same manner, but they all need to be investigated. The board should have a plan of action for handling any and all complaints. The plan should address who needs to know about the issue, both internally and externally. In most instances, the first step is engaging outside counsel; however, it may be appropriate for the human resources department, compliance department, or in-house counsel to conduct the investigation.
- Do keep it confidential. Investigations are generally done on a “need to know” basis and those steering the scope of the investigation should keep information from being shared with those parties that should not be privy to it. Sharing too much information can jeopardize the integrity of such investigation. For example, interviews of employees are expected to be candid and honest without prior prejudices. If an interviewee is armed with information ahead of time, it may alter the outcome of the investigation.
- Do it right the first time. Investigators must take time to understand the potentially far reaching nature of the violation and, the scope should be carefully mapped out. All stakeholders should be in agreement with respect to the investigation. The stakeholders need to be aware that in many cases, investigations can take a sharp turn and can be expanded. Proper gathering of evidence, interviews, and analysis of the collected information will take time. While there should be a sense of urgency to complete the investigation, rushing it to save a few dollars risks an inappropriate analysis of evidence that may prove to be costlier in the end.
- Do wrap up. The outcome of the investigation will likely be used by the company’s auditors, so be sure to complete the investigation with a written report that details the procedures performed, information gathered, and any conclusions reached. Whistleblower calls and investigations are not fun. However, having an understanding of what to do ahead of time is extremely important for all members of management and the board.
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Marc Fogarty, Audit Partner and National Biotech Sector Leader, within Technology and Life Sciences Group, and member of the firm's Public Companies, Cleantech and International Services Groups. Marc is experienced in public accounting, serving public and private organizations and has presented on IFRS to professional groups.
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