Internal corporate investigation: how it works?

What is an internal corporate investigation?

An internal corporate investigation is a range of exploratory measures taken in the event of detection in the activities of an enterprise of signs of offenses that have already been committed or are being prepared.

Such offenses include, in particular, theft of tangible assets, information leakage, and various forms of corruption and fraud. Regardless of their external manifestation, the common feature of these offences is that they cause negative consequences for the company.

The key objective of the investigation is to minimise the harm caused by unlawful acts to the enterprise. Its direct tasks are as follows:

1. Establishment of the circumstances of the commission of unlawful acts;
2. Establishment of the scope of persons involved in the commission of unlawful acts;
3. Identification of opportunities for bringing the perpetrators to liability and compensating for the damages caused;
4. Introduction of mechanisms for monitoring and preventing the commission of unlawful acts.

Who is authorised to make decisions on conducting an internal corporate investigation? How do such persons participate in the investigation?
It must be understood that in order to make a decision on conducting an investigation a person needs to be vested with respective powers. These are determined by the charter and other internal documents of the enterprise, such as the Anti-corruption program. In general, the range of initiators is limited to business owners, officials within the company’s management bodies, and heads of separate units and affiliates.

As regards the role of such persons in conducting the investigation, it should be noted that this matter is situational. The person who made a decision to conduct an investigation monitors its progress and the results obtained. However, a manager, or a founder does not need to be directly involved in conducting the investigation, i.e., to attend interviews with employees, participate in the audit of accounting documents, conduct inventories or check the work of control and safety systems, etc. In particular, this is related to the peculiarities of the methods of work and the impact on the objectivity of the results. But this does not mean that they do not participate in the investigation at all.

Thus, an investigation requires granting persons designated to conduct it with a certain range of powers, such as the right to access to premises, obtain documents, get access to information resources and arrays, etc. These powers are granted by the person who decides on conducting the investigation.
Also, it must be understood that the task of the persons conducting the investigation is solely to establish the circumstances of the commission of offenses, as well as terminate or prevent them. They cannot interfere with the economic activities. Therefore, only the official of the enterprise is authorised to make decisions based on the facts revealed in the course of the investigation.

Who directly conducts an internal corporate investigation?

The investigation is conducted by the duly authorised person or a group of persons. Usually, a manager issues an order to conduct an investigation, listing specific persons and their authorities.

In order to conduct a successful investigation, when determining the range of authorised persons, it is necessary to remember a few simple rules.
Firstly, it is necessary to determine the scope of the investigation, plan activities, and consider the need to attract external specialists, experts, or consultants. The current Ukrainian realities are characterised by commonly used “kick-back schemes”, where a chain of subordinate workers obtain their benefits. It is clear that in this case, the efficiency of conducting an investigation equals zero.
Secondly, it is necessary to avoid probable conflicts of interest. Personal relationships, fulfilment of official duties and even complicity in the commission of unlawful acts can lie at the heart of a conflict.

Thirdly, it is necessary to immediately determine the scope of powers of the persons conducting the investigation. This will ensure the promptness of actions and help prevent the destruction of traces of an offence.

Fourthly, prior to conducting an investigation, it is necessary to involve persons with appropriate professional skills. In the course of investigations, one has to work much with the legislation, check the primary and accounting documents, and work with employees. In order to ensure the objectivity and efficiency of the investigation, it is necessary to involve specialists from certain areas. After all, a lawyer is most likely to be unable to give advice on the economic feasibility of hundreds of economic transactions. In turn, an auditor will not be able to properly interview employees and record these interviews so that they can be used as evidence in judicial proceedings.

Fifthly, it is necessary to clearly define the time limit for conducting the investigation (as a rule, it is up to one month). The specified time limit can be extended, if necessary. The investigation should be completed within this time limit, and the materials on its results should be submitted to the official who made a decision to conduct it.