When should you take your internal accounting error/mistake or irregularity/fraud investigation outside?

Most every audit committee member, in-house counsel, other board member, CEO, CFO, risk officer, and chief internal auditor will at some time consider whether an accounting related investigation that is being done internally should be taken outside. The decision to stay inside or to go outside isn’t necessarily clear, and there certainly could be differing opinions depending on the facts and circumstances of the situation. The following isn’t a formal or legal discussion, but below are at least some of the factors that I would consider and that you might consider. Every situation is different at least to some extent.

  1. Is there really the expertise in-house to do the investigation? This is an important consideration that I will have more to say about in other posts – however, consider whether it is important for the primary investigator to not only have a legal background in the subject matter, but also accounting or auditing backgrounds. Whereas an accounting or auditing firm might also be retained to assist with the investigation, you might well also find that it would be helpful for the primary investigator to be able to understand the accounting, internal control and auditing or auditor issues, and that the primary investigator might need those backgrounds to better lead the investigation and make decisions or evaluations.
  2. Is there really the time availability to handle the investigation in-house?
  3. Is the dollar amount involved sufficiently large to warrant going outside for the investigation?
  4. Are the qualitative natures of the issues sufficiently important to warrant going outside, such as because of possible public relations, ethics, fraud, or other considerations?
  5. Does it warrant going outside because of the possible people who might be interviewed, questioned or involved including their office or stature in the organization, and their relationships with the people who are investigating, the board, the audit committee, the executive officers and other people?
  6. For whatever reasons, is it warranted or required that the investigation be independent, or more independent in nature.
  7. If the initial investigation began in-house (which is entirely possible), has it for whatever reason now become more prudent to go outside?

That’s it for now. Just some thoughts. I’m sure that you can come up with additional thoughts – the above discussion isn’t all encompassing.

Dave Tate, Esq. (San Francisco and California)


Audit Committee 5 Lines of Defense 07182016



GAO – A Framework for Managing Fraud Risks in Federal Programs

A friend forwarded this to me – the GAO July 2015, materials “A Framework for Managing Fraud Risks in Federal Programs.” If you, and your executive officers, board and audit and risk committees are not up on these materials, and if you have involvement in federal programs or funding, now would be a good time to read this. But I also have to wonder if the federal government itself follows this framework? Immediately below is a snapshot of the first page of the materials, and then I have provided a link to the full materials just below the snapshot. Dave Tate, Esq.

GAO - A Framework for Managing Fraud Risks in Federal Programs

Click on the following link for the full materials: CLICK HERE

Comments on the DoJ Fraud Section Plan and Guidance

Recently, on April 8, 2016, I wrote a post about the new DoJ Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance. Here is a link to that post and the Plan and Guidance CLICK HERE.

I did not at that time provide comments about the Plan and Guidance, which is only 9 pages in length. Whereas audit committees definitely should read and understand the Plan and Guidance, and take it into consideration for the purpose of pre-policies, processes and practices, and then also if an event or occurrence happens, my additional overview comments are as follows.

As you read through the Plan and Guidance, unfortunately I believe that you will find that for the most part it vaguely says that you should conduct an investigation of everything and everyone who might be relevant to the event or occurrence, that you should self report everything that you find (except for attorney-client information and materials, but of course the Fraud Section might argue about what qualifies as being attorney-client privileged), and that the Fraud Section will then consider what benefits it will grant, if any, to you for doing so. In that regard, I have to say that the Plan and Guidance is noncommittal, vague and overly broad, and might be considered heavy-handed, and as such isn’t particularly helpful or not nearly as helpful as it might have been.

The Plan and Guidance also only applies to the Fraud Section – thus, it does not apply to any of the other numbers of governmental entities, divisions, departments or sections that might also be looking into the event or occurrence. But, please do read and understand the Plan and Guidance anyway.

And the following is a link to my Excellent Audit Committee Guide – read it and pass it around, CLICK HERE.

Best, Dave Tate, Esq. (San Francisco/California)

New 9-Page Letter Guidance From The US DoJ On FCPA Enhanced Enforcement, Self-Reporting And Cooperation

The following is a link to a new 9-page letter from the US Department of Justice providing guidance about enhanced Foreign Corrupt Practices Act enforcement, self-reporting, and the actions that are necessary for individuals and businesses to obtain cooperation status. The letter is only 9-pages – in this post I’m not going to summarize the letter because you can (and should) read the letter in about the same amount of time. Audit committee members need to read and understand this letter, and then be sure that the company has proper policies and procedures in place.

Here is the letter, April 5, 2016, US Dept. of Justice New FCPA Enforcement Plan and Guidance, and https://www.justice.gov/opa/file/838386/download.

Enjoy. Dave Tate, Esq. (San Francisco/California), and see also Tate’s Excellent Audit Committee Guide at Tate’s Excellent Audit Committee Guide 01032016 with Appendix A Final

CAQ Report Re Discussions With Audit Committees Re Audit Quality Indicators; Auditor Assessment Tool; Tate’s Excellent Audit Committee Guide

The Center for Audit Quality (CAQ) has published a new report summarizing it’s discussions with audit committees about key audit quality indicators. Here is a link to the announcement which also contains a link to the report: CLICK HERE

And here is a snapshot of a relevant part of the announcement (you can also see the entire wording by clicking the above link):

CAQ discussions with AC about audit quality indicators

Keep in mind, however, that the PCAOB also is working on these issues, i.e., key indicators for audit committee or board evaluations of the external auditor, and audit committees already are required by law to oversee the hiring and performance of the external auditor. In my opinion if the PCAOB does issue new rules or materials on these issues, those new rules or materials will generate more audit committee and board oversight or activity than the CAQ materials. Nevertheless, the CAQ materials and discussions are helpful. Thus, here is a link to materials that the CAQ has already issued to help audit committees evaluate the external auditor: The CAQ Auditor Assessment Tool

And here is a link to Tate’s Excellent Audit Committee Guide (updated January 3, 2016), click on the following link, http://wp.me/p75iWX-q

Dave Tate, Esq. and CPA licensed in California (inactive), San Francisco/California


Tate’s Excellent Audit Committee Guide – updated 1/3/2016 – 183 pages – read, use it, and pass it along

Hello all. Tate’s Excellent Audit Committee Guide is updated – click on the following link for the pdf of the January 3, 2016, updated Tate’s Excellent Audit Committee Guide. Please read and use it, and pass it along to other people who would be interested,

Click to access tates-excellent-audit-committee-guide-01032016-with-appendix-a-final.pdf

Going forward, I have also made this blog, http://auditcommitteeupdate.com, my blog for audit committee, D&O, civil litigation, risk, compliance, business, etc. posts. My prior blog, http://directorofficernews.com, still exists, so you can still access that blog or the numerous past posts.

Dave Tate, Esq., and CPA in California (inactive), San Francisco and throughout California. My other blog for trust, estate, conservatorship and elder abuse litigation is http://californiaestatetrust.com


Audit Committee Oversight of Derivatives – Not Just For Funds – Check Your Entity’s Oversight

You may have seen this month news about new SEC rules relating to the use of derivatives by registered investment companies. Related to the derivatives topic, I found a Wall Street Journal article about restatements and Commissioner Luis A. Aguilar’s December 11, 2015, speech about derivatives interesting from an audit committee perspective.

In particular, I have pasted below a snapshot from the Wall Street Journal article discussing common causes of restatements – you will note that derivatives are listed (click on the snapshot to enlarge).

Frankly, although revenue recognition is well-known as the big cause of restatement, I had not considered the importance of derivatives as a top five cause. Every public entity is different of course, however, the Wall Street Journal statistics suggest that all audit committee members, not just those of registered investment companies take into consideration the extent to which their entity is involved in derivatives and related accounting, and consider whether oversight in the derivative area is appropriate, and whether each audit committee member is sufficiently knowledgeable about derivatives and their accounting, or needs some additional continuing education.

Accounting for derivatives is complicated – I myself have pulled the derivative accounting materials off the shelf for another refresher. I have also pasted below a snapshot from some of Commissioner’s speech which I found interesting.

Immediately below is the snapshot from the Wall Street Journal article listing accounting standards or areas most commonly involved in financial restatements for the recent period 2011-2012.

WSJ Major Causes of Restatements

The following is a snapshot from some of SEC Commissioner Aguilar’s December 11, 2015, speech about accounting for derivatives in the context of registered investment companies.

2015-12-29_7-09-19 from Aguilar derivatives speech

Commissioner Aguilar also commented about the extent of the global derivatives market: “Meanwhile, the global derivatives market remains huge, at an amount estimated in excess of $630 trillion in notional value worldwide.[4]” You can see Commissioner Aguilar’s speech at: 


It would not surprise me if derivatives and accounting for derivatives take on greater importance for audit committee oversight in the future, for all companies that have significant derivative activities and not just for registered investment companies.

Enjoy, and onward.

Tate’s Excellent Audit Committee Guide (updated October 24, 2015, 172 pages) – click on the following link – please use and pass along to other people who would be interested – https://auditcommitteeupdate.files.wordpress.com/2015/10/tates-excellent-audit-committee-guide-10242015.pdf

Dave Tate, Esq. and California CPA (inactive), San Francisco and throughout California