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)

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Audit Committee 5 Lines of Defense 07182016

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New ISO Anti-Bribery Standard – Will It Give Companies An Absolute Defense?

ISO has published its new international anti-bribery standard, ISO 37001. You can find select information about the new standard HERE and at http://http://www.iso.org/iso/home/standards/management-standards/iso37001.htm .

The short PowerPoint presentation in part says:

The Standard benefits an organization by providing:

  • Minimum requirements and supporting guidance for implementing or benchmarking an anti-bribery management system
  • Assurance to management, investors, employees, customers, and other stakeholders that an organization is taking reasonable steps to prevent bribery
  • Evidence in the event of an investigation that an organization has taken reasonable steps to prevent bribery.

SO HERE’S AN INTERESTING QUESTION: will compliance with the standard give the company a free pass on bribery liability with the SEC and other state and federal entities and agencies if in fact a bribery occurs? I bet not. However, consider that generally liability does not result unless the person or entity charged has breached or failed to satisfy the applicable standard or duty of care (except in select situations, e.g., such as strict liability or products liability, etc.), and that breach or failure causes damages. Thus, if the applicable standard becomes ISO 37001, and if that standard is met or satisfied, it certainly is arguable that no fault or liability should result if a bribery occurs.

Best to you, Dave Tate, Esq., San Francisco and California. See also Tate’s Excellent Audit Committee Guide (updated October 2016), tates-excellent-audit-committee-guide-10202016-final-with-appendix-a

The Business Judgment Rule – a short animation (for fun, but also correct):

Audit Committee 5 Lines of Defense 07182016

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Director (Prudent) Note Taking, Discouraged or Not – Forward From Woodruff-Sawyer and Priya Cherian Huskins With Comments

Here is a link to a good discussion by Priya Cherian Huskins, Esq. at Woodruff-Sawyer about director note taking (not minute taking, but note taking), which can also apply to note taking in general in many situations, CLICK HERE. I agree with Ms. Huskins.

There should be policies and procedures or guidelines to be followed, but a director should be allowed to take notes, and should not be told that he or she cannot take notes. It is a matter of the director performing his or her oversight function in the manner that he or she believes is prudent and necessary. If I was told that as a director or audit committee member that I could not take notes that I thought were necessary and helpful to me and my oversight, I would question that instruction or request, and consider declining the position if it was forced.

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

Do You Have a Contrarian on Your Team?

A divergent opinion can lead to more creative and better decisions.

Click on the following for the article: www.gsb.stanford.edu

Dave Tate, Esq. comments – good for thought – every board and management situation is different anyway – but also, did anyone say that there shouldn’t be or can’t be contrarian views on a board or committee? Look at the business judgment rule – there’s nothing there about all having to agree. One vote per person. My website: http://tateattorney.com.