Internal Investigations

Institute of Internal AuditorsPalm Beach County Chapter

June 15, 2012

History of the Company

• October, 2001—Great Southern Detective Agency – Criminal Defense

• State/ Federal court– Family Law

• Surveillance

• September 2003– Wendy joins the

firm– Civil/personal injury

• October 2005– Consultant, policies

and procedures• May 2006

– New name, new focus, new staff

• June 2009– Certifications (CLI,

FRP)

Who We Are

• Certified Paralegal (CP®)

• Certified Fraud Examiners (CFE®)• Certified Criminal Defense Investigator (CCDI)• Certified Legal Investigator (CLI)• Bi-lingual• Federal, State and Former LEO• Forensic accountants• Certified technical forensic experts

What We Do

• Since 2001– Located over 1000 people– Conducted over 5000 interviews– Uncovered millions of dollars in assets– Verified credentials for executives, managers and

experts– Performed detailed “due diligence” for

corporations and financial institutions

What We Do

• Harassment/Discrimination claims• Fraud and theft/embezzlement cases• Background investigations• Due diligence investigations• Drug cases• Net worth determinations

The (Workplace) Commandments

• You shall not lie (on your application)• You shall not steal (from the jobsite)• You shall not kill (or assault a co-worker)• You shall not covet (your employer’s goods)• You shall not blaspheme (or make inappropriate

comments to an employee)

Some Common Schemes

• ‘Skimming’ and theft of cash

• Billing (‘shell’ companies, vendor ‘refunds’)• Payroll (falsified hours, ‘ghost’ employees,

commission schemes)• Misuse of company assets* (vehicles, supplies,

computers)• Theft of inventory

Some Common Problems

• Drinking or using drugs (driving, operating equipment)

• Improper relationships*• Jokes, comments, e-mails• Disparate policy enforcement (‘inadvertent’

discrimination)• Ignoring ‘danger’ signals (threats, aggression,

escalation)

How We Can Help

• ‘Internal’ investigations team

• Interviews, forensic analysis• Locate stolen property or money• Verify use of company assets• Identify dealers and abusers• Protect the workplace• Policy review and development

Attorneys and Investigators

• Attorneys performing investigative interviews?• Costs, qualifications• Potential conflicts• Gathering information versus conducting depositions• Confidential vs. privileged (work product)• Oversight and coordination• Subsequent litigation; preparing for the lawsuit• Finally, what’s in a name?

Managing Employee Investigations

Reginald “Reggie” Montgomery, CLI, CPP, CFE, CP

Backgrounds • All new employees • If not all, then Sales, Purchasing, Transportation, Financial

& all Upper Management positions • Criminal (Statewide if available and previous residential

locations) • Motor Vehicle (on all employees who operate vehicles,

SEMI-ANNUAL). • Credit (obtain signed release authorization during

application process) • Employment• Education

Backgrounds - Optional

• Civil Litigation• Database• References

(neighbors, friends)

Computer Theft

• Electronic data and hardware

Espionage

Counter Espionage Sweeps (electronic counter-surveillance, de-bugging) – To do it right is expensive

• Board Meetings • R & D Meetings • Sales Meetings

• Planning Meetings

Case Study #1: Hewlett Packard

• CEO orders an investigation into information “leaks” from the BOD to the press

• Private investigators utilize “pretexting” to obtain personal identifiers and call information

• Telephone records identify board member as source of information provided to journalist

• HP prosecuted by state and federal authorities for use of pretexting; data brokers and investigators criminally charged

Hewlett Packard

• Issue: How an outside investigator can screw up your case

• The investigation became the focus of attention• The original wrongdoing (violation of ethical and

fiduciary obligations) overlooked by the media and authorities

• Legislation introduced to criminalize pretexting

Fraud

• White Collar – Embezzlement– Phony vendor schemes– Skimming’ and theft of cash– Billing (‘shell’ companies, vendor ‘refunds’)– Payroll (falsified hours, ‘ghost’ employees,

commission schemes)

Fraud

• Blue Collar– Misuse of company assets* (vehicles, supplies,

computers)– Theft of inventory

• Other fraud indicators– Issues with harassment, inappropriate behavior,

viewing pornography may indicate disregard for company policies,possible inclination for fraud schemes

Harassment

• Get everything in writing • Put in personnel files• Competent Investigator to conduct interviews or

polygraphs (voluntary)

• Employment backgrounds

(previous history of harassment?)

Loss Prevention

• NEGLIGENCE SUITS • Surveys • Recommendations • FORESEEABILITY

Misconduct

• Company policy violations – Written– Reviewed by outside counsel

• Employee separations– Security concerns– IT coordination– HR documentation

Labor Disputes

• Coordinate Physical Security • Coordinate transportation of employees on and off

site • Protect employees and facility • Get qualified expert in field that knows how to

cooperate with both parties (if possible) in non-confrontational manner!

• Video/film (confer with qualified labor counsel)

Polygraph

• Know when to and when not to • Employee notification

• Qualified expert to conduct polygraph

Surveillance

• Worker’s Compensation Fraud • Theft • Harassment • Violence • Absenteeism • Justification for termination needs proof!• “Manned” and “unmanned” video

Undercover Operation

• Very dangerous, must be handled properly • Usually requested to resolve theft, drug usage• White or Blue Collar, operative must be smart and

report only to Investigator. Findings to be reported confidentially and daily.

• Provides collateral information re: policy violations, management issues, undisclosed liabilities

• Coordination with law enforcement in cases involving contraband

Violence (see Harassment)

• Get everything in writing • Put documents in personnel files• Competent Investigator to conduct interviews or

polygraphs (voluntary) • Employment backgrounds

(previous history of harassment or violence)

Workers’ Compensation

• Review reports (accident and medical)

• Conduct surveillance

Employee Theft

• Verify initial report • Attempt to quantify losses • Initiate appropriate techniques for apprehension • Report findings

• Make recommendations and initiate corrective

controls

Case Study #2: Asset Misappropriation

• Employee utilizes company vehicle for personal business

• Surveillance to establish daily and “after hours” activities

• Research to identify business entities at various locations

• Covert contacts to confirm personal business enterprise

• Documenting for submission to corporate counsel

Resources for Employee Investigations

• Voice Print Identification • Statement Content Analysis • Law Enforcement • Countermeasures • Covert Cameras • Net Worth Analysis

Resources for Employee Investigations

• Profiling • Polygraph and Interview

• Forensic Accountants • Computer Forensics

• Due Diligence

Resources for Employee Investigations

• Surveillance • Undercover Operatives • Civil Litigation (plaintiff and defense) • Contingency Planning • Facility security cameras and access control • News and media reports • Confidential informants

Resources for Employee Investigations

• The List of Resources for Employee Investigations is only limited to the Investigator’s imagination, corporate policy, local, state, and federal laws

• Endless waiting, increasing anxiety• Facts of surveillance:

– Patience, patience, and more patience– Minimal intake of fluids– Staying focused and in “alert” mode– Blending in– Physical discomfort (heat/cold, cramped quarters, thirst,

hunger)– Sense of humor required

Case Study #4: The Investment

• Viatical settlements passed as an investment opportunity

• Terminally ill patients have life insurance policies with significant death benefits

• Patients “sell” the policy and assign the benefits to a third party “broker” in exchange for a portion of the death benefit

• Tens of millions invested by pension funds

• Patients receive immediate cash to pay for “quality of life” support, medications, or travel

• Broker then sells “shares” of the policy to investors/groups

• Investors collect a share of death benefits when the patient/policyholder dies

• Monies collected from investors used to purchase insurance policies from terminally ill patients

• Policies reviewed by medical personnel to confirm diagnoses and life expectancy

• Returns of 40% “guaranteed”

Issues to discuss

• You are on the audit committee of a state pension fund tasked with performing due diligence

• What are the elements that should be reviewed and verified before making a significant institutional investment?

• What items would you ask to see from the broker?• What processes would you utilize to verify

information provided?

Behind the Curtain in Oz• $110M taken in by FinFed/ABS• Only $6M in policies actually purchased• Only one nurse to review medical policies• Two lawyers “certified” that procedures were

established and followed, and that they personally reviewed the files

• Shares were determined to be securities; brokers not registered/licensed to sell securities

• Patients were living beyond initial life expectancies

Behind the Curtain in Oz

• Fraudulent insurance policies uncovered• No institutional investor conducted more than cursory

examination before investing millions• Millions spent on lavish lifestyles: homes, cars, jets,

travel• Initial investors paid “returns” from proceeds from

new investors (Ponzi)• “Hey, it’s the 90’s!”

Behind the Curtain in Oz

• Outcome: Federal prosecution of all participants• Sentences of 5 to 50 years• Lawyers disbarred• Investors large and small lost millions• Pension funds threatened with insolvency• The largest Ponzi scheme in Southern District of

Florida at that time• All for want of a quality audit and appropriate due

diligence

And, finally…Thank You!

• Mark J. Murnan, CLI, CFE• mark@completelegalinv.com• 561-687-8381• “Like” us on Facebook: Complete-Legal-

Investigations-Inc• Sign up for our newsletter• Make it a great weekend!