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INTERNAL INVESTIGATIONS AND TRANSPARENCY: THE END OF MR.

DOMINICK’S DISTINGUISHED CAREER
Daniel Edelman, Director of Accounting Programs Daniel_Edelman@tamu-commerce.edu Assistant Professor, Texas A&M University-Commerce, USA Virginia Fullwood Instructor, Texas A&M University-Commerce, USA Gordon Heslop Assistant Professor, Texas A&M University-Commerce, USA Tim Wilson Assistant Professor, Texas A&M University-Commerce, USA

Abstract
Investigations of allegations of misconduct are necessary to monitor and control actions of agents (employees). Reports on facts found are also necessary to provide transparency and to provide a basis for action or change. Reports on allegations found not to be true and resulting in no recommended action serve a limited purpose and sometimes cause harm to agents. A balance is needed between disclosures required for transparent agency relationships and the harm transparency causes to agents. The purpose of this paper is to describe the need for this balance, using the example of a specific investigation conducted by a Government Agency. The illustration will then be used to comment on the current state of internal controls over investigations of financial management and to suggest improvements in these controls.

Introduction
Organizations, such as businesses and government agencies, rely on human agents (employees) to achieve goals. Internal controls are needed to monitor and control the actions of agents and assure faithful performance of agency duties. Actions of agents are controlled and monitored by policies and procedures intended to assure agents do not act without authority and that they comply with procedures limiting and documenting their
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actions. These policies and procedures should prevent unauthorized actions and provide a means to monitor actions taken. These policies and procedures form part of what is known as internal controls. Effective internal controls require a willingness to investigate allegations of unauthorized action or failures to observe required procedures. Persons working as agents must expect to be subject to investigations regarding their performance of agency duties. For agents of the US Federal Government, allegations of misconduct are investigated by the Office of the Inspector General, within an agency. According to the US Department of Justice, the Office of the Inspector General “conducts independent investigations, audits, inspections, and special reviews of the United States Department of Justice personnel and programs to detect and deter waste, fraud, abuse, and misconduct, and to promote integrity, economy, efficiency, and effectiveness in Department of Justice operations” (www.USDOJ.gov/oig.index.hmtl). We believe these goals to be similar at other Offices of Inspector Generals within other agencies. Transparency requires investigations whenever reasonable suspicion of misconduct exists, and requires the scope and actions of an investigation to be driven by the facts discovered. Investigatory resources and credibility are reduced when investigations occur without reasonable suspicion and actions taken by investigators are not determined by findings of fact. Transparency in agency relations is increased when principals have reason to believe investigations are not used for political or other reasons not related to monitoring agency duties. The broad scope of the investigatory powers of the Office of the Inspector General does not necessarily provide this assurance. The purpose of this paper is to describe the delicate balance of disclosure of transparent investigations and allegations of misconduct. We describe an actual case, with fictitious identities (Roscoe B. Dominick) to illustrate our concerns.

The Case of Roscoe B. Dominick
Roscoe Dominick was a senior executive at a high profile agency (ABC). ABC is a branch of the Department of XYZ. During Dominick’s three year tenure at ABC, the political environment at XYZ was allegedly chaotic. A series of scandals occurred at XYZ during that time and its management was characterized in the media as “dysfunctional” by political leaders from both of the main parties. In January, 200X, the Office of the Inspector General of XYZ received an anonymous letter alleging Dominick engaged in “egregious acts of gross mismanagement of public funds and failures of leadership.” The letter alleged eight incidents of financial mismanagement and also alleged Dominick engaged in unfair hiring practices and tolerated a hostile work environment. The Office of the Inspector General investigated the allegations and issued a report.
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The OIG Report
The Office of the Inspector General’s report described eleven allegations against Dominick. Nine of the eleven were found to have no basis in fact. One was found to have an arguable basis, but a “de minimus” amount of funds were involved. Another was found to have a basis, but related to actions of subordinate ABC employees and was only indirectly attributable to Dominick. This allegation, in which Dominick was at fault, was discovered by the Office of the Inspector General while investigating the others. The Office of the Inspector General report made no material recommendations for changes and generally confirmed Dominick’s substantial compliance with internal controls. The report did offer lots of opinions and unsupported conclusions about issues outside the scope of the investigation or the expertise of the investigator. The report harshly criticized Dominick, using vague and sensationalistic terms. The opinions expressed in the report apparently substitute the judgment of an independent investigator for that of a politically appointed agent with biased responsibilities. The only change to result from the investigation was the resignation of Dominick. Press coverage of his resignation, “amid an inquiry into his spending”, suggests the investigation may have caused him to resign. The allegations against Dominick, and the Office of the Inspector General report on them, may be summarized as follows: 1. Hiring Policies and their Budget Impact Dominick was accused of hiring excessive numbers of ABC employees. The report found no unauthorized employees were hired and no policies or procedures were violated. The report then criticized Dominick for hiring new employees, expressed an opinion that the funds should have been used for other purposes, and suggested that Dominick denied ABC employees safety equipment and training programs. 2. Design Changes to ABC’s Headquarters Building Dominick was accused of making unnecessary changes to the ABC headquarters building completed during his tenure. Again, the Office of the Inspector General report found no unauthorized acts or failures to follow policies and procedures. The Office of the Inspector General report then proceeded to detail building expenditures, including the use of premium materials in portions of the building used by Dominick and other senior ABC managers. The report provided sensationalistic details and dollar amounts and expressed an opinion that funds expended for these offices could have been put to better use.

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3. Other Construction and Renovation Projects Dominick was also accused of making unnecessary changes to other construction projects. Again, the Office of the Inspector General report found Dominick acted within his authority. But, again, the report criticized operational decisions, this time Dominick’s decision to increase funds for gyms and training rooms in field offices and for an enclosed garage for an agency truck. The Office of the Inspector General again suggested that the funds could have been better used for other purposes. 4. Assistance in Nephew’s High School Project This allegation was not contained in the anonymous letter, but was brought to Office of the Inspector General’s attention during the course of the investigation. Office of the Inspector General found that ABC resources had been used to assist Dominick’s nephew on a high school project. The project, which involved at least 20 ABC employees engaged in technical, time-consuming work over a ten month period, produced a 90 minute DVD. The project included the use of ABC space and several pieces of equipment, including computers, lights, mailing materials, film, and a teleprompter. The OIG report found Dominick exceeded his authority by directing and authorizing the use of ABC resources for his nephew’s high school class project. 5. Use of the Executive Protection Branch Dominick was alleged to have misused bodyguards provided by ABC. The Office of the Inspector General report did not find he exceeded his authority or failed to follow policies and procedures, but noted amounts spent to provide bodyguards for all ABC executives and expressed the opinion that “selective ratcheting up and down of his security detail was driven more by considerations of appearance than security needs.” 6. Travel The anonymous letter accused Dominick of improper spending on trips to London, England, New York City, Boston, and Ottawa, Canada. The Office of the Inspector General report found the purpose of the trips was directly related to the mission of the ABC. The report did not find Dominick exceeded his authority or failed to follow procedures. Nonetheless, in most instances, the report raised concerns as to the number of travelers (i.e. medic, security details, press relations personnel, and others), the procedures by which the travel arrangements were made, and the overall cost. 7. Use of Representation Fund The anonymous complaint alleged that Dominick, on numerous occasions, invited individuals with no apparent connection to ABC activities to have lunch at government expense in his office or at nearby restaurants. ABC’s annual budget provides funds, called a “representation fund” to provide lunches to persons to “promote personal relationships necessary to enhance the performance of the ABC”.
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The Office of the Inspector General identified three instances where Mr. Dominick hosted lunches in his office that did not appear to relate to ABC affairs. The total cost of the questionable expenditures was only $50.03. The report noted the amount was small. 8. Creation of a hostile work environment Dominick was accused of requiring two female administrative assistants to arrange and serve lunches to him and his guests in his office. Allegedly, they were also required to announce that, “lunch is served.” Office of the Inspector General concluded that Dominick encouraged or allowed the administrative assistants in his office to pick up meals, arrange table settings, heat and serve meals, and clean up afterwards. The Office of the Inspector General report did not find Dominick exceeded his authority, but expressed an opinion that “these duties were not among those reasonably expected of administrative assistants.” The report also expressed the opinion that Dominick exercised “poor judgment by placing subordinates in the demeaning position of serving lunch to him and his guests”.

Conclusion
The Dominick report provides an example of a failure of internal controls over investigations. The decision to investigate was based on an uncorroborated anonymous letter. With relatively minor exceptions, the Office of the Inspector General found no abuse of authority or failure to follow procedures, yet their public report contained sensationalistic, vague, and difficult to rebut opinions, such as “believed”, “questioned Mr. Dominick’s judgment”, “he bears ultimate responsibility”, “poor judgment”, and “did not act properly”. Most of the opinions expressed by the report related to narrow operational issues not related to compliance with internal controls. These issues were outside the scope of the investigation and perhaps outside the expertise of the investigator. The report found no material wrong was done, and confirmed the faithful performance of agency duties, and then proceeded to unnecessarily harm the person investigated. Transparency in agency relationships is best served when investigations do not occur without reasonable cause and when reports on investigations are limited to findings of fact and do not include opinions on operational matters outside the expertise of the investigator. On the other hand, when investigations can begin and end without clearly defined standards, investigations harm public interests by consuming scarce resources, discouraging persons from entering or continuing public service, and undermining the moral authority of legitimate investigations.

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Reasonable standards for the reliability of evidence required initiating an investigation, clearly defined limits on the scope of an investigation, and a reasonable relationship between facts reported and recommendations for change are needed to conserve scarce resources and mitigate harm to persons investigated. When these standards do not exist, all investigations are tainted by the suggestion that they may have some purpose other than the public good. The Dominick report shows no reasonable basis for an investigation and no relationship between facts reported and recommendations for change. The only tangible result of the investigation was the resignation of Dominick, even though he was not found to have committed any material breach of his agency duties. The absence of credible evidence that an investigation was needed, as well as the lack of a relationship between facts reported and recommendations for change, suggests the true reason for the investigation may have been to cause Dominick’s resignation. If true, the legitimate purpose of investigations would have been corrupted and the relatively anonymous judgment of the investigator would be substituted for the legitimate and transparent processes normally used to monitor the actions of public servants. If this is true, arbitrary and capricious investigations could become the true source or power and authority in an organization, subverting legitimate internal control procedures. The case of Roscoe B. Dominick suggests changes are needed to assure investigations are not used to subvert or replace legitimate decision making processes. Changes are needed to assure the public that: 1. Investigations do not occur until there is credible evidence an agent has exceeded their authority or failed to follow required procedures; 2. The scope of investigations is clearly defined as the investigation begins; 3. Ongoing investigations are monitored and discontinued in the absence of sufficient credible evidence of wrongdoing; and, 4. Public statements of investigators are limited to findings of fact; excluding opinions or conclusions not related to recommendations for changes. Internal control policies and procedures limiting and controlling the actions of investigatory agents are needed to protect their integrity and to preserve the value of investigations into the performance of agency duties.

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