Investigation Week: Part 1, Triage of Internally Reported Allegations

Thomas Fox

Compliance Evangelist

This week on the FCPA Compliance and Ethics Blog, I will have a five-part series on steps you should take leading up to an investigation. In today’s Part 1, the triage of reported allegations.

One of the things that I learned from the television series M*A*S*H was the need for triage. In the hospital setting, triage is the process of determining the priority of patients’ treatments based on the severity of their condition. In the 2020 FCPA Resource Guide, there is a short but succinct statement, “once an allegation is made, companies should have in place an efficient, reliable, and properly funded process for investigating the allegation and documenting the company’s response, including any disciplinary or remediation measures taken.” This is considered in more expansive language in the 2020 Update to the Evaluation of Corporate Compliance Programs.  Under Part 1, Section D. Confidential Reporting Structure and Investigation Process, it stated in part, Properly Scoped Investigation by Qualified Personnel – How does the company determine which complaints or red flags merit further investigation?

Given the number of ways that information about violations or potential violations can be communicated to the government regulators, having a robust triage system is an important way to separate the wheat from the chaff and bring the right number of resources to bear on a compliance problem. One important area is making an initial determination of whether to bring in outside counsel to head up an investigation and the resources that you may want or need to commit to a problem. You literally need to “kick the tires” of any allegations or information so that you know the circumstances in front of you before you make decisions. You can achieve this through a robust triage process.

Jonathan Marks has suggested a five-stage triage process which allows for not only an early assessment of any allegations but also a manner to think through your investigative approach. Marks cautions you must have an experienced investigator or other seasoned professional making these determinations, if not a more well-rounded group or committee. Next, what will be the types of evidence you will need to consider going forward? Finally, before selecting a triage solution you should understand what tools are available, including both forensic and human, to complete the investigation. Marks’ five-stage process includes the following: 

  • Stage 1. These consist of allegations that have a low threat level and do not suggest a breakdown of internal controls. Tips that get grouped into this stage do not have a financial or reputational impact.
  • Stage 2. These allegations are more serious in nature, and often indicate some deficiency in the design of internal controls. Examples include business rule violations such as recurring employee theft or patterns of falsifying expense reports.
  • Stage 3. These allegations are serious in nature, generally involve an override of internal controls, and thus are at a minimum a serious deficiency. But they have only a minimal impact on the financial statements or the company’s reputation. More serious allegations in this category include fraud, embezzlement, and bribery involving employees or mid-level management.
  • Stage 4. These are serious allegations that could have an impact on the completeness and accuracy of the audited financial statements, and that could indicate a material weakness in internal controls. They do not, however, appear to involve any member of the senior management team.
  • Stage 5. These are serious allegations that involve one or more members of the senior management team or are serious enough to damage the company’s reputation. The receipt of allegations in this stage usually place the company into crisis management mode and could result in the restatement of audited financial statements or added regulatory scrutiny.

By using such an approach, you will be able to respond more quickly and efficiently to any allegations that arise. Of course, as more information is developed during the course of an investigation, the matter can be moved up or down this scale. Such an approach is also important for a company’s outside investigative counsel to partner more with the entity to help hold down costs. Outside counsel can work to build confidence that the company’s investigators could handle a large or wide-ranging investigation. This confidence would help outside counsel in any discussions they might have with the DOJ during the pendency of an investigation.

Such an approach also has the effect of keeping your investigative costs below the ridiculous level. This is because beyond the tactical need to initially scope an allegation, it allows you to move to the next step of developing a reasonable investigation plan. This can be particularly important if you self-disclose to the DOJ. You will need to present your investigation plan to the DOJ so an early discussion with the government on the scope of the investigation is critical.

You should engage the DOJ to show not only the scope of your investigation but that it can be limited so that you do not face the dreaded ‘where else’ question. You should develop a logical plan with the nexus to the facts. But it is critical that the investigation plan has credibility with the government that not only will your investigation be robust but that facts you have determined in your initial triage are a reasonable interpretation.

Appropriate triage of allegations has several different impacts for any matter which comes to the attention of compliance. Obviously, it will help you to initially determine the seriousness of the matter. From there you can allocate an appropriate level of resources. It will also aid in your discussion with the DOJ if you must go that route. Finally, in the situation where facts come in, it provides the required documented evidence that a process was followed that you can show the government that a claim was properly scoped, as required under the 2020 Update to the Evaluation of Corporate Compliance Programs. But the key is to be prepared, not only in terms of having your investigation and notification protocols in place before an allegation comes in but also doing the proper triage so that you have an initial understanding of what you may be facing.

For more information, check out The Compliance Handbook, 2nd edition, published by LexisNexis and available here.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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