What Happens During an Internal Investigation for Fraud?

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• What an Internal Investigation Involves
• How an Individual Can Prepare for an Internal Investigation in Colorado

According to the Federal Bureau of Investigation (FBI) white collar crime describes a wide range of fraud committed by private and public professionals.

Many fraud cases arise, at least in part, due to an internal investigation. Those under investigation need to be prepared for what to expect. In this article, you will find an overview of internal investigations and the investigative process for fraud in Colorado.

T. Markus Funk, a white collar crime attorney at Perkins Coie in Denver, says fraud investigations are typically identified in three main ways:

• Whistleblower complaints;
• Government inquiries; or
• An internal audit or intel.

What an Internal Investigation Involves

The questions that internal investigations are looking to answer and the information that they are looking to find will depend on the specific allegations and scope of the investigation.

Though individual cases are unique, the common focus is on facts.

“The key is to figure out whether the allegations are true,” Funk says. “And if they are true, we want to figure out who was responsible for what happened, what exactly did happen and why did it happen, and also when did it happen?”

Internal investigations focus first on this fact-finding, and then advice, Funk says.

“We will be brought in to identify who did what, how and when, and then we will give advice on remediation – what should the company do to address the problem,” Funk says.

The recommended next steps could be going to the government or regulatory agency to report misconduct or taking disciplinary action. This remediation could include speaking with regulators such as the SEC, law enforcement or enforcers such as the federal, state or international enforcement agencies.

“Oftentimes we will also be intermediary between the company and the government,” Funk says.

Internal investigations are generally more proactive than criminal investigations that put the client in a defensive posture.

“[In a criminal investigation] you’re basically playing catch up. You’re trying to figure out what happened,” Funk says. “Your typical international investigation, you’re trying to determine what went wrong.”

The two often work on parallel paths. “The government comes along and drafts a subpoena and says we believe you or employees in your company may have engaged in misconduct. And then immediately the company want to identify what happened,” Funk says. This requires a delicate balance, as companies do not want to take any actions that look obstructive to the criminal investigation.

Working with an outside attorney for legal advice can bring the benefit of expertise for companies conducting an internal investigation, Funk says.

“Company attorneys are often incredibly sophisticated and smart, but tend to be oriented more towards either litigation or corporate work. Internal investigations is a very specialized area,” he says. “So, there’s a benefit of having the experience of someone who’s worked with companies and with governmental agencies for years, who kind of knows how to read the tea leaves and how to understand where the governments going.”

Credibility is also a factor. “When we go to a government agency, they know us. I mean, they know us usually by name,” Funk says. “They’ve worked with us before. They know we’re going to shoot them straight, we’re going to give them honest information and they can trust us.”

That puts the attorney and client in a better position to work out an arrangement.

Timelines for these investigations often run longer than anticipated. “Typically these investigations are matters of months, not days or weeks,” Funk says.

Internal investigations is a very specialized area. So, there’s a benefit of having the experience of someone who’s worked with companies and with governmental agencies for years, who kind of knows how to read the tea leaves and how to understand where the governments going.

How an Individual Can Prepare for an Internal Investigation in Colorado

With internal investigations, it is important to be proactive. Facing accusations of professional misconduct is deeply stressful—especially when the allegations in question could expose you to potential corrective action or criminal liability. Here are four steps to take to prepare yourself if you are facing an internal fraud investigation in Colorado:

1. Know the Allegations: First and foremost, it is useful to get a handle on the nature of the investigation and any legal issues. It is easier to proceed if you know what, if anything, you are accused of doing wrong. That being said, it is generally not a good idea to confront investigators directly on this matter, at least not without professional representation.
2. Get Yourself Organized: You may be asked for information about your actions. To the best of your ability, try to get yourself organized. You may have documents, records, or other information that can help to exonerate you against false allegations.
3. Be Careful With Your Words and Action: An internal investigation is not the same thing as a criminal investigation. However, it could turn into a criminal investigation—and what comes up in an internal investigation may be raised as evidence in a future white collar crimes case. Be very careful about what you say and do when under an internal fraud investigation. It could affect the outcome of the investigation.
4. Consult With a White Collar Attorney: Fraud cases are notoriously complex. You do not have to navigate the entire process on your own. One of the best steps that you can take to protect yourself from personal, professional, and criminal liability is to consult with an experienced Colorado white collar defense lawyer as soon as possible after learning of an internal investigation.