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Balancing Cost and Risk in Workplace Investigations

Assess the complexity of the case to find a cost-effective solution that meets the needs of the company.

Posted by Dawn Lomer on August 8th, 2011

When disaster strikes in the office and a workplace investigation is inevitable, it’s easy to forget about costs in favor of getting to the bottom of the problem. And while it’s important to react quickly to any complaints of employee misconduct, ignoring to the limits of the company’s resources might not be the best strategy.

“Investigations are hard to price in advance because, like renovating an old house, an investigator never knows what she or he will find,” says Maribeth Vander Weele, President of the Vander Weele Group, a corporate investigations firm in Chicago, and founder of the online investigative service, Sagerity Investigative Intelligence.

Despite cost concerns, investigations need to be thorough and appropriate in order to stand up in court, should the need arise. The decision maker has to find the right balance between a cost-effective investigation and one that meets the needs of the company.

To help with this, Vander Weele divides investigations into three tiers, outlined below, according to the complexity of the case. The solution and costs depend on the type of investigation. By categorizing  cases in this way, companies can use the least expensive solution appropriate for the case, without sacrificing the quality of the investigation.

Tier 1 Investigations

Tier 1 investigations are extremely complex matters, often involving high-profile suspects and requiring a high degree of sophistication in accounting, legal, and financial matters. Examples include matters involving financial statement fraud, SEC violations, backdating of options, international schemes spanning multiple countries, and Foreign Corrupt Practices Act violations.

Competing for these investigations are large firms suc h as FTI Consulting, Navigant Consulting, Kroll, PricewaterhouseCoopers, and Deloitte, as well as law firms that employ former US Attorneys and Assistant US Attorneys to execute the work. Tier 1 firms may charge $450 to $750 an hour with projects ranging from $250,000 to more than $1 million each.

Companies typically hire these firms for three reasons:

  1. They require highly specialized knowledge and are willing to pay top dollar for it.
  2. They need bandwidth because the scope of work is large.
  3. They need a brand name because the subject of the investigation is high profile.

Tier 2 Investigations

Tier 2 investigations involve probes into employee and vendor  schemes such as payroll and purchasing fraud, kickbacks, embezzlements, diversion of product to the black market, and conflicts of interests. These investigations require strong investigative interviewing skills to extract confessions, a working knowledge of fraud schemes, and an understanding of financial documents such as purchase orders and payroll records.

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As is the case in Tier 1 onvestigations, Tier 2 investigations require  str ong report writing skills and meticulous documentation that can withstand legal scrutiny in court.  Boutique and mid-sized investigative and forensic accounting firms are among those that compete in this space and typically charge $195 to $275 an hour. While boutique firms may have difficulty staffing a project team of 10 or more people for Tier 1 investigations, Tier 1 companies may have difficulty performing Tier 2 investigations cost-effectively.

Tier 3 Investigations

Tier 3 Investigations typically involve “street work” such as surveillance in domestic situations, workers’ compensation fraud, missing persons, unattributed police or federal law enforcement intelligence, and insurance fraud related to accidents. Competing at this level are thousands of small firms created by former lower-level law enforcement agents from the FBI, the Secret Service, state police, and other agencies (who, depending on their financial and legal knowledge, may compete in previous tiers as well). With many principals working out of their homes, these companies may charge $75 to $175 an hour.

Also competing in this space are large firms such as Kroll, Pinkerton, and Securitas that perform high-volume work such as hundreds of millions of dollars of security clearance investigations for the federal government or the staffing of surveillance investigators in many locations throughout the country on an as-needed basis.

Finally, a growing area is on-line investigative due diligence, which combines investigative skills and knowledge of public documents with online research to profile individuals and companies. Strong computer, fact-finding, financial and business skills are required to execute these projects skillfully.

The Cost-Effective Solution

“Investigations completed professionally can save a tremendous amount of time and money by averting litigation, preserving a company’s reputation, quantifying losses for insurance claims, and maintaining employee morale,” says Vander Weele. And finally, she recommends: “Get employee fraud insurance. This coverage often covers the cost of an investigation.”

Dawn Lomer
Dawn Lomer

Manager of Communications

Dawn Lomer is the Manager of Communications at i-Sight Software and a Certified Fraud Examiner (CFE). She writes about topics related to workplace investigations, ethics and compliance, data security and e-discovery, and hosts i-Sight webinars.

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