Best Practices: Using An Internal Investigation To Your Advantage

As in any industry that is subject to government oversight and regulation, participants in SBA loan guaranty programs are subject to higher levels of scrutiny than most businesses.  The consequences that may arise from internal wrongdoing are different from those found in unregulated industries.  In the SBA world, the concept of program integrity is all important.  It  behooves an SBA program participant to address internal wrongdoing before being required to do so by the SBA, whose remedial tools could include suspension and debarment from program participation.  

More often than not, the possibility of internal wrongdoing is learned as the result of external events:  a whistleblower complaint; a government audit; or the receipt of a government  investigative subpoena.  In any event, the company cannot adequately address the situation without knowing the facts.  An investigation needs to be undertaken to learn the facts so that informed decisions can be made to deal with any wrongdoing and at the same time minimizing any possible disruption to the business.  The greater the amount of independence in the conduct of the investigation the greater amount of credibility the results of the investigation will have with the regulatory authorities.  

The company’s Board of Directors needs to be informed of the potential problem as soon as practicable.  The independent members of the Board need to assume responsibility for deciding whether the circumstances warrant an internal investigation to be conducted and, if so, how it will be conducted.  If an investigation is to be conducted, it is important to protect the integrity of the investigation.  Maximum use should be made of those legal protections available to conduct the investigation thoroughly and in confidence.  Outside counsel should be engaged who can conduct the investigation efficiently, and take advantage of the protections afforded by their use of the attorney-client and attorney-work product privileges.  Experts in the subject of the investigation should be utilized, especially where the suspected wrongdoing involves the application of the myriad rules, regulations, processes and procedures mandated by the SBA.  

The scope of the investigation needs to be defined keeping in mind the alleged conduct that is resulting in the investigation.  The goal of the investigation needs to be reflected in its scope, recognizing the requirements of the SBA to whom the results of the investigation are likely to be presented, and any other potential audiences who may be watching and waiting.  

If  the internal investigation is being conducted at the same time as a government investigation, it may be beneficial to open a line of communication in order to make sure that the results of the internal investigation will address the questions that the government has.  If a subpoena has been issued, outside counsel can assist in negotiating the scope of the subpoena and, if appropriate, educate the government investigators in certain aspects of the company’s processes and procedures, and document retention policies.  

The company needs to identify those persons who will be supervising outside counsel, who should be a member of either the Board’s audit committee or a special committee of the Board consisting of independent Board members.  No person who is implicated or allegedly involved in the supposed wrongdoing can have anything whatsoever to do with the investigation.  

As the investigation progresses, the investigators and the Board should review the adequacy of the scope of the investigation as new information is learned, and make appropriate adjustments to the scope as needed.  

In this day and age, almost all available information is contained in electronic documents.  Persons familiar with the company’s technology infrastructure and who are expert in the latest data collection techniques should be used to gather the information from all devices and storage locations, and preserve historical tracking data.  Tools can be used to identify documents that are likely to have relevant information, and documents that may be protected from disclosure to third parties by the attorney-client privilege.  Investigators working with counsel should conduct the document review and identify relevant information.  

Witnesses should be identified and interviewed, but cautioned that counsel conducting the interview represents the company and not the witness, and that the company can disclose the information provided by the witness if it is in the company’s best interest to do so.  

Only after the relevant information is gathered can the company then properly evaluate the situation, identify and assess its risks, and formulate an appropriate plan of action.

For further assistance please contact the attorneys at Starfield & Smith, PC at 215-542-7070.