Advice for Audit Committee Chairs on Conducting Special Investigations
Audit committee chairs are often tasked with conducting investigations of suspected financial frauds, corrupt payments, or other sensitive and complex matters, particularly those with financial reporting, accounting, internal control, or disclosure aspects. During the second quarter of 2023, Tapestry Networks, an independent firm supported by EY, convened the audit committee chairs of nearly 100 large U.S. public companies to discuss oversight of special investigations. Oversight of Special Investigations, a publication in Tapestry’s Viewpoints series, summarizes considerations regarding such investigations that audit committee chairs should be aware of, based on these sessions.
Tapestry’s paper is divided into three sections, mirroring the stages of an investigation:
The preliminary inquiry. During the preliminary inquiry stage, key issues that must be addressed are deciding whether and when to launch a board-led investigation; determining who from the board should lead the investigation (e.g., the audit committee, a special committee, or the full board); and selecting legal counsel.
Overseeing the investigation. Tapestry states that “[e]ffective oversight of investigations involves managing the investigation’s scope and establishing a collaborative relationship with stakeholders connected to the investigation.” The paper discusses the importance of properly scoping the investigation (e.g., creating a written work plan), ensuring timely and appropriate communications (e.g., with management, the board, the external auditor, and shareholders), and preparing for interactions with regulators.
Concluding the investigation. Ending a special investigation “requires strategic planning, comprehensive assessment, and applying effort to improvement.” Concluding a board-led investigation involves ensuring that the original objectives have been met and that the results can withstand scrutiny. In addition, the investigation should result in “forward-looking remediation [that] improves future resilience and governance” and in identifying and addressing the root cause of the matter.
The paper includes an appendix listing questions for audit committee chairs to consider in connection with special investigations.