Internal Corporate Investigations

Internal Corporate Misconduct and Similar Investigations

By Michael O. Hawkins, J.D.

The Hawkins Group

Edmonds, WA

Fraud, white collar theft and employee misconduct are an increasingly growing problem in corporate America. Federal, State and other law enforcement agencies are becoming more involved in the investigation of such internal misconduct. Taking steps to protect your organization from internal erosion can not only save money, but can also save an organization from very unfavorable and damaging publicity which impact the bottom line.

An organization confronted with an out-of-the-ordinary allegation of wrongdoing, raised either by an employee or by a third party such as a customer, vendor, or governmental agency, must make prompt and often irrevocable decisions regarding the response to those allegations and the means by which they will be investigated and resolved.

The purpose of an investigation is to gather facts so that an organization can make a credible determination as to what happened in a given situation. If someone is thought to have violated a policy, guideline, or the law, conducting an effective investigation helps the organization reach a conclusion that is based on the most accurate facts available. Having accurate facts are the basis of a sound, legal conclusion.

Any organization conducting an investigation must exercise care to avoid the basis of a litigable claim for defamation, wrongful termination, or other torts from the suspect employee, and the grounds for an alleged statutory or common law violation and emotional distress claims of the complaining individual.

In deciding whether to investigate, employers should be mindful of incidents that are likely to be immediately dismissed but should in fact be investigated. For example, while complaints of sexual harassment by a female against her ex-boyfriend/co-worker or by a male against a female or by homosexual employees may not be the traditional type of complaint, they are nonetheless forms of harassment that may lead to legal exposure. Additionally, complaints of threats and violence that may all too easily be dismissed as horseplay or a "flare-up of tempers" may lead to legal liability under theories of negligent hiring or negligent retention. In short, employers should seriously consider the nature of the allegation when determining whether to launch a full-blown investigation.

In determining who will lead an investigation of an employee complaint or other allegation of wrongdoing, an employer must balance two competing interests: (1) the need for a prompt, thorough, and independent investigation and is perceived as such, and (2) the need for confidentiality, cost-effectiveness, time efficiency, and control over the investigation.

An independent external investigation has a number of advantages over one that is handled internally: (1) Actual and Perceived Objectivity and Independence; (2) Ability to bring specialized expertise to bear on the investigatory process; (3) The respect of those who are the subject of the investigation and those who are potential witnesses; and (4) Credibility of the ultimate determination.

Companies can use financial consultants such as auditors and accountants, legal counsel, or private investigators working in conjunction with either of the above. The use of a professional external investigatory agency such as The Hawkins Group when compared to a completely internal investigation may be more expensive in the short term, but cheaper in the long term in terms of expertise and credibility.

An investigation is effective only if performed promptly. Sitting on a complaint from an employee or customer may create the very lawsuit an investigation is designed to prevent. This is particularly true in sexual harassment cases where an essential element of the case is whether and when the employer investigated the complaint. Courts have acknowledged that employers that have immediately sprung into action and taken effective remedial action when confronted with a problem should not be liable.

Among the issues that must be resolved in any internal investigation are completeness of the process as measured against the allegations made, and confidence in the eyes of those making the allegations that the process has been full, fair, and independent.

FCRA Now Permits Third Party Workplace Misconduct Investigations

The Fair & Accurate Credit Transactions Act (Pub. L. 108-159, 117 Stat. 152) was signed into law on December 4, 2003. Section 6 of the Act specifically exempts third party workplace misconduct investigations from the notice and consent provisions of the Fair Credit Reporting Act. On December 16, 2003, the Federal Trade Commission, in conjunction with the Federal Reserve Board, approved the publication of a Notice of Proposed Rulemaking, establishing March 31, 2004 as the effective date governing workplace investigations.

With the passage of this new law, employers can now legally employ the necessary external professional help to conduct fair, impartial and reliable investigations. Such external investigations are often much more credible to outside parties such as judges and juries than are those done either in-house or under the employer's direct control.

Michael O. Hawkins is an experienced trial attorney having practiced law for fifteen years prior to becoming an Agent for the Naval Investigative Service (NIS). With NIS he conducted felony level criminal investigations and counter-espionage investigations in Charleston, S.C., Camp LeJeune, N.C., Rota, Spain, Naples and La Madellana, Italy, Keflavik, Iceland and in Panama. He then went to the Federal Law Enforcement Training Center (FLETC) as a Senior Instructor in the Legal Division and soon became responsible for running that division and then the Behavioral Science Division. He also served as an Adjunct Instructor at the International Law Enforcement Academy (ILEA) in Budapest, Hungry training mid and upper level law enforcement from the former Soviet Block countries. Mr. Hawkins is currently a licensed private investigator in the State of Washington where he operates The Hawkins Group conducting both criminal and civil investigative sevices for attorneys.