Contending with Compliance Audits in Difficult Circumstances (the "egg shell audit")
Modern business faces a substantial list of reports and returns that must be filed with Governmental Agencies, each of which carries with it the danger and risk of penalties or even criminal allegations for errors and misstatements. Most of these compliance areas are, in turn, subject to audit or examination by Government Agents and dealing with these various agencies while attempting to avoid the consequences of prior conduct and without exposing the business or its owners to greater risks is one of the major areas in which we work and where often the greatest victories are those in which no allegations of wrong doing are ever raised.
The breadth of examinations confronting various businesses is overwhelming. Tax returns are examined by State and Federal officials, Governmental agencies audit contracts with the government, in Iowa DNR and EPA agents can be involved in a variety of audits of records and facilities, financial institutions "monitor" various business transactions and report those results to the Federal Government which can lead to further investigations or audits, ICE agents (that are "criminal" agents) audit I-9 compliance and other employment issues, insurance companies and federal auditors review health providers’ claims for compliance and fraud issues (often a thin line).
In the face of such audits, even the oral misstatement of facts to a governmental official undertaking such an examination can constitute a felony as can the submission of false reports or information. The most difficult of issues face businesses where the error (intentional or accidental) is discovered and prior to correction the company is notified of a pending audit or examination. Similarly, audits of employees by ICE or other criminal agents carry with them potential risk regardless of the compliance efforts by the business itself.
The submission of information in examinations or investigations is complex and difficult and includes the following:
- Information and representations to examiners. Our engagements often relate to counseling clients on the best ways to deal with prior errors in the face of pending audits or examinations, protecting against claims that false information was submitted to the agent while concurrently attempting to protect the business and its owners from claims that may arise out of the prior conduct problems. Such counseling includes making sure all involved clearly understand the danger in misstating facts or information and minimizing direct contact with such agents by those at legal risk in the situation.
- Responding to summons issued by examining agents adds a new layer of complexity to the situation. Most of the mentioned Governmental Agencies have the authority to compel the production of documents and individuals to discuss the matters. Whether they can actually get what they request or talk to whom they wish to talk is a far different question in many cases. While such summons themselves are normally not self-executing, they can be enforced in Court and thus properly responding to them is important as well as understanding the limits and scope of concepts such as the Fifth Amendment (particularly as it relates to the production of documents) and that Agency’s general authority and powers. Normally in serious situations the rules: (a) do not make it worse; (b) isolate potential targets from agents; (c) monitor development; and (d) make affirmative decisions to attempt to impact the outcome at the appropriate time are key in obtaining the desired result.
- Responding to search warrants. At least where possible, providing the Company and its key employees with an outline of how to respond should the company be subject to a search warrant can minimize the damage of lost records, prevent statements and comments from key employees from further damaging the situation or creating additional risk to all involved (including counseling on issues such as false statements, obstruction of justice and other issues that need to be confronted). Such counseling includes responding to management questions in the face of an unexpected issuance of a search warrant including things such as not permitting employees to consent to expanded searches and what can be done to "monitor" the search itself.