The Audit Committee As Sleuth: Conducting an Internal Investigation

Section 301 of the Sarbanes-Oxley Act of 2002 requires a publicly held company's audit committee to establish procedures for the receipt, retention, and treatment of complaints relating to accounting, internal accounting controls or auditing matters. Companies have taken varying approaches to these requirements, sometimes adopting policies that are part of a larger program that deals with compliance issues broader than just financial and accounting matters. Whatever the approach, whistleblower programs raise the same issue: what to do with a complaint that comes in. Public companies listed on the New York Stock Exchange or Nasdaq are also required to adopt charters for their audit committees. Sometimes allegations involved potential criminal conduct. The institution's response to such allegations can be a critical determinant of whether, if the allegations prove true, it will ultimately be prosecuted. Law enforcement officials give substantial weight to whether the institution maintains an effective compliance program. The need to conduct a credible internal investigation often requires the use of professionals outside the company.