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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

International Journal on Governmental Financial Management – 2008 139


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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