Companies today are under greater scrutiny than perhaps ever before. As a consequence there has been marked increase in the number of companies conducting their own internal investigations, caused by either a regulatory probe or by a business itself uncovering wrong doing.
But if internal investigations are to please regulators, or form a solid basis for disciplinary action, they have to be robust. With little guidance available, that places companies at a disadvantage.
A plethora of new legislation in the UK and across Europe has added pressure for more internal probes.
According to Nigel Layton, a partner in forensic and investigation services at Mazars, the regulatory environment has strengthened, fuelling a rise in investigations.
“Corporates are now expected to comply with a host of anti-bribery and anti-corruption laws that can lead to severe sanctions when things go wrong. The regulatory environment for corporates is starting to go the same way as the banks,” says Layton.
Focus on compliance
The issue is pressing. A recent survey by eDiscovery and compliance services company H5 looked at expectations in companies around the world and found that 63% anticipate the number of corporate internal investigations to rise over the next three years. Increased regulation and a greater focus on compliance by regulators have proved key factors.
That places a premium on getting an investigations right. Board Agenda has partnered with Mazars to produce a guide to best practice in internal investigations.
The guide examines how to prepare and scope out an investigation; who is best placed to undertake the work; the governance issues affecting an investigation; how co-operation with regulators and authorities should work; the way evidence should be collected and preserved; and how witness interviews should be conducted.
There is much to consider and the pitfalls are numerous for boards and company managers. But they can be avoided—and that’s important because regulatory authorities are watching. The Financial Conduct Authority has noted that watchdogs cannot “naively” accept a firm’s work and conclusions.
Regulators are also alert to increased risk. The National Crime Agency has noted publicly that as the UK departs the European Union and companies seek trade elsewhere they are likely to encounter “corrupt markets”, particularly in the developing world, “raising the risk they will be drawn into corrupt practices”.
Perhaps the single most important decision will be who handles the investigation: outsiders or insiders?
For Mazars, outsiders provide key qualities, though a blend of resources may provide the best results. According to Nigel Layton, outsiders can offer “independence, objectivity and experience. They can also send a strong signal that the investigation has been conducted ‘properly’.”
He adds: “If handled purely in-house, issues that arise can easily be swept under the carpet; key witnesses or documents can be overlooked or may not be considered important at the time.”
Katie Miles, a forensic services manager at Mazars, underlines the importance of choosing the right route.
“The company should maximise the best possible blend of internal resources partnered with external experts,” she says.
Investigations can be a reputational and financial minefield if handled inadequately. The experts are clear: waiting for trigger events may be too late to implement an effective procedure. Plan now, put the right protocols in place and ensure board members are prepared, they insist. Having a plan in place can help a board ensure a company’s reputation, financial and legal positions are protected.