internal investigation

Internal Company Records Used in a Fraud Investigation

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In a corporate fraud investigation, the most abundant source of information about the fraud will likely come from internal records of the company. Remember, of course, that the internal records will be not only be paper records, but will be digital as well. In fact, the volume of digital records will likely be greater than the paper records, as companies reduce the amount of paper in favor of computerized records.

Typical internal records requested by a fraud investigator include accounting system data, financial statements, tax returns, sales and accounts receivable records, expense documentation, and proof of payments to vendors. The financial data requested often starts with broader requests (financial statements and tax returns) and moves toward more detailed requests (account detail, invoices, etc.). This is because the broader requests are generally used to get background information about the company and its finances. As the investigation progresses, the investigator will dig further into the specifics, which will require the detailed documentation.

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Professional Service Providers and Criminal Charges

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Lauren Stevens, former in-house counsel for GlaxoSmithKline was acquitted last year of criminal charges of obstructing a government agency. She was accused of withholding documents from the U.S. Food and Drug Administration when it was looking into allegations of off-label marketing of the antidepressant Wellbutrin.

Stevens has said, “I think the criminalization of the practice of law is here, and I don’t think it’s necessarily going away. The government will continue to be aggressive in looking at in-house counsel.”

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Whistleblower Complaints: Fast Action Required

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Recently I wrote about an internal investigation I did for a company which received a whistleblower complaint, sent to executives, the board of directors, and the Securities and Exchange Commission. Upon receiving notification that allegations of fraud were being made by a former employee, management immediately started evaluating the claims. The board of directors began planning for an independent investigation.

This was the right thing to do, particularly as the SEC’s whistleblower program gives a 120 day window of time for companies to react to internal allegations of securities fraud. If someone reports allegations to a company, 120 days pass, and then the informant goes to the SEC, the SEC will consider the person making the report to be a whistleblower eligible for a bounty.

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FCPA Compliance: Documentation Necessary

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When under scrutiny for potential Foreign Corrupt Practices Act violations, how does a company prove that it was doing the right thing? The memories of your employees, along with their narratives of what happened will not be persuasive. Sure, interviewing them can uncover helpful information. But nothing is so compelling as documentation that supports the company’s position.

Your company must be able to document several things as it relates to possible FCPA violations:

  1. The existence of a compliance program, and details about what that program actually entails
  2. How the company evaluates employees, vendors, customers, and business partners that may pose FCPA-related risks.
  3. The details surrounding potential violations and actual violations (Receipts, agendas, business operations, background investigations…. all the types of things that show what the company did to ensure compliance and fully investigate any potential sources of problems.)

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Las Vegas Sands FCPA Investigation: What Did Management Do When they First Found Out About Allegations of Bribery and Corruption?

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Earlier this week, Las Vegas Sands (NYSE:LVS) announced in its 10-K for the year ended December 31, 2010 that it is the subject of an FCPA investigation:

On February 9, 2011, LVSC received a subpoena from the Securities and Exchange Commission requesting that the Company produce documents relating to its compliance with the Foreign Corrupt Practices Act (the “FCPA”). The Company has also been advised by the Department of Justice that it is conducting a similar investigation. It is the Company’s belief that the subpoena may have emanated from allegations contained in the lawsuit filed by Steven C. Jacobs described above. The Company intends to cooperate with the investigations.

Las Vegas Sands says that it is also the target of a similar investigation by the U.S. Department of Justice.

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Financial Analysis in FCPA Cases

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This week I recorded a podcast for the International Association for Asset Recovery (IAAR), which is accessible on the IAAR site. We talked a bit about where financial investigations are going, and how I am using technology to complete these investigations quicker and more effectively.

David Quinones, host of the podcast and Editorial Director for IAAR, asked how a private sector forensic accountant fits into a Foreign Corrupt Practices Act (FCPA) case.

I talked about two ways that forensic accountants and fraud investigators can be utilized:

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Atlanta home builder Beazer restating results

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Beazer Homes USA has completed an internal investigation into accounting problems and will restate its financials from 1999 through 2007.

The results of the investigation: Employees in the mortgage unit violated HUD rules on downpayment assistance since at least 2000. Beazer might have to reimburse some losses on federally insured loans because of this. The liability is estimated at $8 million to $15 million, the amount for which the company thinks the government will settle.

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