Whistleblower Case Study: Conducting Independent Internal Investigations. The Whistleblower. The Allegations 07/28/14

Transcription

1 Whistleblower : Conducting Independent Internal Investigations Tracy L. Coenen, CPA, CFF tracy@sequenceinc.com The Whistleblower Accounting Manager Chronic poor job performance Letter to Board of Directors, Securities and Exchange Commission, and Auditors Allegations were detailed enough that they appeared to have merit The Allegations Quitting his job because of fraud Improper revenue recognition Improper inventory valuation to lower cost of goods sold Improper fixed asset valuation 1

2 Company Action Board of Directors started independent investigation immediately Evidence preserved immediately Management directed to cooperate with investigator Investigator given full access The Investigation Internal or independent? Who is involved? How serious are the allegations? Are there legal or regulatory implications? Planning the Investigation Clarify the allegations Develop a fraud hypothesis What specific frauds may have been committed and how Dictates data to be gathered and how we will investigate 2

3 Planning the Investigation Talk to lawyers (especially re: employment issues) Determine the relevant time period Planning the Investigation Determine the objective of the investigation, such as: Internal discipline Court action (civil or criminal) Recovery of money Prevention of future frauds, etc. Planning the Investigation Identify immediate concerns, such as: Security of assets and data Preserving evidence Removing suspect, etc. Determine location and timing of investigation 3

4 Who: Independent investigator Alleged Fraud: Improperly inflating income and assets Period: 3 years, to cover the periods included in the allegations plus one year prior Objective: Confirm or refute allegations Immediate Concern: To be prepared in the event of an SEC investigation Location: Company headquarters (where accounting staff is located) Timing: Begin immediately (will show good faith if SEC gets involved) 4

5 Digging Into Issues Work from more general to more specific Interview those least likely to be involved, and work toward target/suspect Gather and reserve evidence (both paper and digital) Documentation gathered: Internal communications Accounting system data Reconciliations Appraisals Documents filed with SEC Access to all employees for interview Interviews of management Attempted interview with whistleblower Said he had documents and additional information Did not provide it Did not allow me to interview 5

6 Issues were already identified as material weaknesses Had already been disclosed in SEC filings Accounting and control issues existed Action was taken to resolve issues Write-downs and adjustments already taken Proactive steps to remediate Company already took all appropriate actions before whistleblower surfaced No accounting irregularities discovered Using intuition to discover that which is undisclosed and/or covered up No discomfort with any issues 6

7 What the Company Did Right Gave Board of Directors control over the issue Engaged independent investigator Investigated these issues LONG BEFORE the whistleblower raised them Changes made based on prior investigation What the Company Did Right Allowed investigator to determine scope and approach to investigation Management and Board of Directors did not attempt to influence the investigation or final report What the Company Did Right Gave investigator unlimited access to people and documents Most important: Acted immediately to investigate issues 7

8 What the Company Did Wrong Failure to take action sooner for poor performance of accounting manager Failure to monitor or restrict access following last counseling session SEC Action Informal inquiry initiated within 90 days or receipt of letter Subpoena approximately one year later Ongoing requests and depositions Three years after whistleblower letter, inquiry still open Tracy L. Coenen, CPA, CFF