Investigation Bites: Introducing Internal Investigations – how they support good governance

Increasingly, organisations are undertaking internal investigations as a key corporate governance mechanism.  We consider that internal investigations are likely to be even more widespread in the future, with new legislation such as the Economic Crime and Corporate Transparency Act broadening corporate criminal offences including the failure to prevent fraud offence. Organisations relying more on technology and AI throughout their business operations, can identify areas of regulatory exposure and abuse and greater Environmental, Social and Governance (ESG) credentials required for most organisations. 

But what is an internal investigation, what are their application and use, and when might one be appropriate? 

This article seeks to answer your most common questions on internal investigations:

1. What is an internal investigation? 

An internal investigation is an investigation conducted by an organisation, typically after wrongdoing is discovered within that organisation. That investigation is internal in that the organisation is managing, conducting or otherwise instructing a third party to undertake that investigation on their behalf. A parallel external investigation may be taking place, by law enforcement or another investigative agency involving the same wrongdoing.

2. What are the triggers for an internal investigation?

Usually, but not always, an organisation will want to undertake an internal investigation when a concern has been identified, or there is suspicion of wrongdoing within the organisation. Such concerns may be obvious such as a workplace fatality, or a person associated with the organisation committing fraud or bribery, but other times, the concern is more covert, such as a whistleblowing report, or a customer complaint. 

These investigations are undertaken for numerous reasons, but the dominant reason is to understand more about the incident/concern/suspicion, identify root and contributory causes, and to implement positive improvements throughout the organisation. 

3. Who should conduct an internal investigation?

An investigation should be conducted by experienced investigators. We would recommend that investigations are undertaken independently by a third party in most instances. Many organisations would like that independent investigation conducted by a law firm, both for impartiality, and to benefit from legal professional privilege, which may protect the documents created by an internal investigation from being disclosed externally. This is particularly important if there is an external law enforcement or regulatory agency investigation. Weightmans are often instructed in internal investigations for these reasons. 

4. What are the benefits of conducting an internal investigation?

In our experience, an internal investigation will usually result in prominent improvements in an organisation, through improved systems, policies, procedures and even its wider culture. In the short to immediate term, the organisation has an opportunity to take their time to fully appraise themselves as to what has gone wrong, and to understand their regulatory risk. From a profile perspective, an internal investigation can insulate senior leadership teams and senior management from criticism from internal and external stakeholders and can eliminate or mitigate against future regulatory risk once prominent improvements are implemented. 

5. What happens during an internal investigation? 

The internal investigation will begin shortly after the investigation trigger, such as the discovery of wrongdoing. At this point, we would recommend that the organisation seeks independent legal advice as to the next steps, which may also include liaison and responding to law enforcement or another investigative authority. 

The investigation should be suitably scoped, with key teams identified who will work as part of the internal investigation team, written up in an investigation plan or terms of reference. The investigative steps will then need to be commenced, including the collation of and review of documentary evidence, undertaking interviews with investigation subjects, and producing an investigation report.