Editor: How would you describe your professional duties at Deloitte? Do you interface directly with clients and their law firms or do you serve in an advisory capacity to other forensic accountants at Deloitte?
Zier: I've been providing forensic accounting, civil litigation and national and international investigation services to law firms and corporate clients for close to 30 years. As a partner at both Deloitte and another Big 4 firm, I've been able to leverage my diverse background to help clients address the complex challenges of today's regulatory environment.
Editor: Why is it important that a forensic accountant be engaged at the time (or before the time) an investigation is begun, either internally at a firm or by an external body such as the SEC?
Zier: Historically forensic accountants were an integral part of a company's approach to a problem because they were trained in conducting investigations and in collecting and analyzing data. In the past few years, some investigations have been handled by a variety of other parties who conduct email reviews, data collection and interviews. As a result, some of the major questions of an effective investigation potentially remain unasked: what are the financial ramifications of the problem? How broad is the problem? Does the problem relate to the ethical tone at the company? How was the event or the problem covered up? This is the type of expert questioning a forensic accountant can bring to the table.
More importantly, we bring to the investigative team the ability to look at how business is actually done. As a global organization, we share experiences within that framework. For example, if you have a problem in China we have the ground resources and local market insight to address the issue at hand and help determine if the problem has manifested itself in other ways that may be detrimental to your organization. Our ability to bring this type of global knowledge and experience is critical to the success of any investigation.
I've always been an advocate of bringing in seasoned, experienced forensic accountants with a variety of specialized skill sets. They know that there are common ways people do things, and that knowledge allows our professionals to surgically zero in on the problem as well as the reason for the problem, versus relying upon email review in the hopes of finding a hot document.
Unlike experienced third-party forensic accountants, companies don't deal with investigations every day, so without professional assistance an investigation can go awry very quickly and result in excessive investigation costs. I saw one instance in which a law firm and a company that were working together on an investigation wanted to interview each one of their salespeople in Asia and in the process, image their laptops and review all of their emails. Far from being surgical, this is what I would call "boiling the ocean to catch a fish."
Editor: Why is it important that the focus of the investigation be determined well in advance of the actual meeting of parties? What should be done in preparation for the investigation?
Zier: It's important to assess the scope of the investigation early for a number of reasons: one, to keep costs under control; two, to look at the issues clinically and ask questions in a manner that anticipates further questions. This approach enables us to focus on what is really important. Too often companies try to get 100 percent coverage, or they put inexperienced people on the case. They end up going down avenues that may or may not be productive, and all those things add up to management distraction and cost.
Deloitte's process is direct. When an allegation first comes in, we figure out the substance and the background of the charge before even launching a formal investigation. Ask yourself whether the allegation even makes sense. Very frequently a competitor will file a complaint simply to eliminate a rival. Companies are beginning to learn that triage and careful staging are essential, particularly in investigations in other jurisdictions and environments where investigations are not common.
Secondly, it is important to decide what data must be protected and how to protect it. When people are under investigation, there is an unfortunate tendency for them to trash their emails, despite legal instructions to protect and preserve. Carefully protecting emails and other data should be done early on.
Another critical point is that investigations can take a significant amount of time because of email review, for example. Because there is pressure on public companies to report any material matter, those reporting on a quarterly basis are often rushed into answering the question: is this event of such a nature that I have to disclose this on my 10Q or 10K, or is this something for which I have sufficient data to know it need not be disclosed? I'm an advocate of intelligent honing of issues up front so that they are received with the correct emphasis.
Editor: How often is the party under investigation diverted by underestimating the allegations?
Zier: Unfortunately, this happens often, largely because there has been a reaction in the marketplace against the huge investigation costs over the past few years, which are still occurring in the common, large Foreign Corrupt Practices Act (FCPA) investigations. Companies try to manage those costs by conducting the investigations internally, which carries the risk of only using one person as the investigator with a narrow view of the problem. In those situations, it's very difficult for that individual to approach the investigation on a comprehensive basis. Underestimating the allegation happens quite frequently where management may think the problem is one of corporate compliance pertaining to a code of conduct issue, but on further research, it may be an antitrust issue or an FCPA issue, which could have a tectonic impact on the company. This could result in the appearance that the company did a "whitewash," but it may be entirely due to the lack of experience, and that the investigator may not have looked at the right issues in the right manner. The regulators appear to be very fond of seizing documents when they come in to investigate, and of retroactively second guessing what happened. By underestimating the allegation to try to keep costs down, and by limiting appropriate effort, the company will potentially end up with more problems.
Editor: What are common pitfalls that should be avoided in order to secure that no data is lost?
Zier: First, get advice from someone who understands investigations - whether it be a lawyer, forensic accountant or a joint team effort - as to what the company should do to perform good triage and evaluate the scope of the investigation. Second, decide on the team. If a company wishes to conduct the investigation internally, they at least should have an advisory counsel for the investigation, generally an experienced forensic accountant like me or any of our Deloitte forensic accountants and a lawyer. If the investigation is serious enough for the Audit Committee to be driving it, they will go to outside professionals. I've seen lots of cases, for example, where as a result of not looking at the issue surgically and understanding how business is really done in a given environment, an initial request to preserve data may not be broad enough or does not encompass the right issues. Those under investigation know the investigation is being conducted and generally take steps so that they are not caught in the net. Another pitfall is that a lot of inexperienced investigators will take the data that they've collected and run enormous numbers of search terms. I had an instance where a company had almost 700 search terms to run against data, which resulted in a population of about a million response documents. Reviewing these documents involves a significant amount of legal associate or forensic accounting time in determining relevance. Observing the search terms based upon choosing meaningful and surgical ones, not generic ones, is an important up-front step. If you have done many investigations, you can recommend the varied and right terms very quickly, particularly in foreign languages.
Deloitte has experienced teams who conduct investigations in foreign countries who know how terms (their variations) are used in that country, and are able to run appropriate native language searches.
Editor: Why is it important early in an investigation to seek experienced outside advice while keeping a low profile on the prospective investigation for internal purposes in order not to alarm employees unaware of the investigation?
Zier: There are two issues here. The first reason is that up-front experience helps you address the breadth and focus of the investigation, do the right planning, and gather appropriate data, using the right context for search and review. The second issue is that investigations can be difficult - the word gets around very quickly via the grapevine. The worst outcome is to have unfounded allegations about an employee stemming from grapevine knowledge of the investigation within the company - that person's reputation could be ruined. That is an important consideration that companies have to evaluate in terms of keeping investigations quiet.
Editor: Explain the difficulty of having two or more contemporaneous investigations. Should one overall coordinating group - whether it be an internal counsel or external counsel - along with forensic accountants be placed in charge of overseeing multiple investigations?
Zier: Having contemporaneous investigations is actually becoming more common. There may be parallel investigations conducted by foreign countries or the U.S., possibly regarding one issue or separate issues, which creates problems of its own. For example, the overseas country could have rules that allow the prosecutors to come in and seize all of the documentation in the company in a raid. Suddenly the company may have a problem continuing because it is lacking key operating information or is unable to conduct its own investigation appropriately. More importantly, documentation that the U.S. counsel needs to review is often removed. An investigation by the U.S. government could be stymied because of the actions by foreign regulators.
On the subject of coordination, I am a strong advocate that all investigations should be run by the company's general counsel or immediate designee (subject to their not being under investigation of, course). They have to take control, especially in cases of parallel investigations, since they balance the understanding of the company's environment, risk profile, legal repercussions, and possible ramifications on employees and the company's reputation.
Editor: How should management deal with employees who are involved in the investigation? What happens when a terminated employee is necessary to the investigation?
Zier: It depends on the nature and the involvement of the employee. If the employee is the one under investigation and the issues are significant, what most companies will do is put the employee on administrative leave on a temporary basis. The company must also put the employee in a position where any possible harm to the company is terminated. One of the primary rules in ongoing investigations is to stop the bleeding right up front. At the same time, if you fire an employee, you may not be likely able to interview them. One of the other issues that generally occurs is that employees are going to be frightened of an investigation where they are interviewed by multiple teams of lawyers and/or forensic accountants. They may insist on independent counsel, which could impact the investigation and as well as the company's relationship with the employee.
Editor: How would you like to summarize your interview today?
Zier: It's very important that forensic accountants be included as part of the team, partnering with the external counsel and the company. Experienced forensic accountants bring a lot of value in assessing how business is actually done and in lending their financial and business views to an investigation. Second, pick the right people to work with you - there are lots of investigators that have one or two investigations under their belt and purport to be experts, but it is critical that you have the most qualified team in place. Third, don't automatically assume one should jump blindly into a massive investigation - be intelligent, strategic and do some effective triage up front. Without addressing these three points, the chances for excessive costs and potentially wrong conclusions may be high.
The experienced investigators at Deloitte have the financial acumen, forensic accounting and investigatory skills, and technological know-how to conduct investigations spanning many levels of complexity and breadth. We serve multinational entities, larger national enterprises and fast-growing business, both public and private, across numerous industry lines. We perform effective, surgical investigations all over the world and most importantly, we are here to help you reduce the cost of investigations.
This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering accounting, auditing, business, financial, investment, legal or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.
As used in this document, "Deloitte" means Deloitte Financial Advisory Services LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.