Michael Asaro Discusses Audit Committee Role During an Internal Investigation
Michael Asaro, a litigation partner at Akin Gump, was quoted by The FCPA Report in its multipart series of articles on the role of an audit committee in an internal investigation.
The first article looks at the responsibilities of audit committees and describes the risks and liabilities they face. Asaro noted that, while audit committee members have similar fiduciary duties to a full board, they will also have “different issues that they need to react to.” This could include responsibility for the company’s relationship with its auditor, responsibilities relating to financial reporting and responsibilities relating to the company’s internal controls and compliance programs.
Asaro suggested that maintaining a top compliance program, with oversight by the audit committee, is a very effective defense against anticorruption violations. In some recent instances, he noted, “the DOJ has completely walked away from charging” a company based on the strength of its compliance program. He added that, among effective audit committees are those that choose to be engaged on a regular basis in their companies’ compliance monitoring efforts, and it is “a good practice to have a process in place to manage complaints so people know to whom to elevate them.”
The second article discusses when an audit committee investigation is needed and who should lead it. Asaro said several factors should be considered, including whether the issue at stake involves a country that is a high-risk area, if a transaction includes payments being hidden through intermediaries or if there are “irregularities on the company’s books and records.” An affirmative response to any of those might raise FCPA issues, he added.
Once an investigation gets underway, Asaro does not think an audit committee always needs to be involved, suggesting that, if a company “has a robust FCPA compliance program in place, [it] might have some in-house people who have expertise” in the relevant area. At the same time, however, if the audit committee is not involved, Asaro explained, the government “might be suspicious of things the company did early on in the investigation,” which could hinder credibility.
The third article in the series discusses what a company and audit committee should do when initiating an investigation, including the questions of when the company should retain outside counsel and other experts, how the company should gather information relevant to the investigation and whether and how the company should document the investigation.
Asaro said there is nothing “improper” about the entire board selecting the outside counsel, “as long as there is no independence issue with the board.” The process, he added, should include an evaluation of the reputation of the law firm and the law firm’s relationship with the company. The selection should also be done early in an investigation because “getting advice on how to proceed will insulate the members of the audit committee and the board.”
Selecting outside experts, Asaro advised, “is something the team running the investigation should do closely with outside counsel.” The law firm, he said, “should explain to its client why it wants to retain outside help, what it thinks it needs to retain them to do and why this is the firm that should be used.”
Asaro later discusses document retention, which he said can lead to “major problems” if anything is missing, and the reason he chooses not to produce formal reports following an investigation. He said people can just as easily “communicate the findings in a meeting.”
The final article in the series suggests some best practices for an audit committee after the “meat” of the investigation is completed, including whether and how to self-report. Asaro says the decision to self-report a compliance violation is one that “the committee running the investigation, which is often the audit committee, should ultimately make.” He continues by acknowledging it is “a really hard decision to make and it will have serious ramifications for the company.”