Practical Tips for Nonprofits for Conducting Internal Investigations
By Holly E. Peterson, Esq., Counsel, Tenenbaum Law Group PLLC

A junior-level staff member reports that she is being bullied by a supervisor. A mid-level staff member appears to be using the nonprofit organization’s credit card for occasional personal purchases. A senior-level staffer reports alleged financial improprieties relating to a federal grant. The CEO reports that the Board Chair is too familiar with personal comments and affectionate touches. In each of these circumstances, a nonprofit may be called upon to conduct an internal investigation. This article provides practical tips for conducting defensible and effective internal investigations.

1. Preliminary Assessment

Before an investigation commences, the organization must swiftly assess the nature of the allegations to ascertain whether there are any immediate threats to physical safety or business operations that can and should be managed. For example, if an employee reports a credible threat of workplace violence, of course, the first step is to notify local law enforcement and implement any other interim measures reasonably calculated to protect employee safety. The organization also should assess immediate threats to the organization itself. For example, if it is alleged that an employee is using the employer’s credit card for personal purchases, the organization may want to put a temporary hold on the employee’s account or monitor the account more closely while the investigation is pending. In other circumstances, where concerns persist about evidence preservation, the organization may direct IT to capture a forensic snapshot of a computer.

Other preliminary considerations concern the nature of the allegations and the party best suited to conduct the investigation. As to the nature of the allegations, one should ask, “If the allegations are true exactly as they are presented, do they amount to a violation of the law or organizational policy?” Not all allegations warrant a timely and costly investigation. Imagine, for example, that the organization has a policy prohibiting open-toed shoes in the workplace. An employee reports that her supervisor “bullied” her by admonishing her for wearing flip flops to work. Even though the organization likely has an anti-bullying policy, it is not reasonable to conclude that a supervisor’s efforts to enforce a workplace dress code amounts to bullying. Carefully making these preliminary assessments can protect the organization from unnecessary expenditure of time and resources. Be careful, though, not to summarily dismiss actionable claims simply because they do not incorporate expected buzz words. A report that an employee is being treated dissimilarly from other employees from different racial backgrounds must be investigated, whether or not the complainant expressly labels the differential treatment as “discrimination.”

Moreover, the organization must evaluate who is best suited to conduct an investigation, which requires thoughtful analysis of potential legal, reputational, financial, operational, and ethical risks facing the organization. Human resource staff may be well-suited to address more routine workplace matters. Other matters may require an external engagement. For example, assume a party alleges that the chief human resource officer harbors bias against her. Depending on the facts, it may be prudent for an organization to engage an external, independent investigator to extinguish any claims about compromised neutrality. Alternatively, if sensitive allegations are raised involving the CEO and the Board Chair, or if the allegations implicate legal or other high-profile matters, it may be prudent to engage external legal counsel to conduct a privileged investigation.

Finally, note that not all internal investigations need to be “independent” ones (although some do sometimes call for such independence). Be sure to carefully consider the role of the attorney client privilege (although not all internal investigations are designed to be or remain privileged), and be sure to involve legal counsel at the outset of and throughout all internal investigations (if legal counsel is not conducting the investigation). For instance, if a forensic audit needs to be conducted as part of an investigation, presuming it is a privileged investigation, the nonprofit will want legal counsel to retain the forensic audit firm so that the audit firm’s work product is protected by privilege.

2. Governing Laws and Organizational Policies

Once the organization decides to proceed with an investigation, the lead investigator must determine which laws and organizational policies govern. For example, if an employee alleges that they are being sexually harassed by a supervisor, Title VII of the Civil Rights Act of 1964 (depending on the size of the organization), state laws, and organizational policies are likely implicated. Notably and importantly, allegations may evolve over time; as such, the investigator must be able to identify when other policies or laws are triggered. Of course, as is true for all operations, the organization must follow policies to a tee. Failure to do so will usually create legal exposure for the entity.

3. Investigation Strategy

Next, the lead investigator must thoughtfully craft an investigation strategy. What steps does the organization’s policy require? In what order? What is the scope of the investigation? What is being investigated? What is not being investigated? What information must be acquired to substantiate or invalidate a policy violation? Who may have personal knowledge of the facts underlying the allegations? What might each person be able to tell the investigator? Who else may have valuable information? What tangible evidence might exist that will help the investigator acquire needed information (e.g., account statements, video footage, text messages, emails)? Which witness should be interviewed first? Last? When should each witness be notified? A thoughtful strategy is key to a successful investigation.

4. Conducting Interviews

There is an art and a science to conducting interviews that involves everything from building rapport, to funneling information, to deescalating emotions. While full treatment of interview methodology is not possible here, a brief comment on the art of the question may prove valuable. Certainly, an investigator will prepare by broadly identifying key topics and questions. Even so, the most defensible investigation will derive from organic conversation, which almost never follows a prepared script. The best investigators ask open-ended questions, listen, and pull threads, taking cues from the interviewees regarding how the conversation will proceed. For example, imagine a sexual harassment investigation. The organization’s policy prohibits “severe or pervasive” sex-based misconduct, and the investigator must engage the interviewee in a neutral manner to make a finding of fact as to whether the described conduct was “severe or pervasive.” Often, investigators’ first instinct is to parrot, “Would you describe the conduct as ‘severe or pervasive?’” That is not a good strategy. The more defensible approach is to ask neutral, open-ended questions such as, “What did he say next?” “Tell me more.” “How often did that happen?” Asking open-ended questions and letting the interviewee guide the conversation enables the investigator to elicit unprimed information and better carry out their role as a neutral fact-finder.

From time to time, an investigator may encounter an uncooperative complainant, respondent, or witness. As matter of law, and with some exceptions, employers can require that employees participate in internal investigations, though again, this kind of action should be undertaken only upon advice of legal counsel. (Generally, volunteer leaders such as officers and directors cannot be compelled to participate in such investigations.) When an investigation must proceed without a complainant, respondent, or others, the investigator should clarify that findings of fact will be made without the benefit of the uncooperative party’s input. That admonishment sometimes prompts the uncooperative party to participate, when they initially would not.

5. Gathering and Evaluating Evidence

During interviews, interviewees may refer to emails, text messages, social media posts, photographs, and other evidence to support their representations. Make note of this tangible evidence and ask the interviewee to send documents and information after the interview concludes.

6. Making Findings of Fact

With all evidence acquired, the investigator must ask themselves, “What facts are not in dispute?” Mark those down, as they are as germane to the investigation as disputed facts. Next, identify disputed facts. Of the disputed facts, which facts are corroborated? Does an email or video footage verify a particular version of a story? Did multiple witnesses share the same recollection? If an information gap persists, is there any way the gap can be closed, either through an additional interview or through acquiring additional tangible evidence?

On occasion, but rarely, an investigator may be required to make a finding of fact based on a credibility assessment alone—that is, a determination regarding whose version of events is more likely to be true. Ideally, credibility assessments should be grounded in objective criteria. Did one individual’s story change over time while the other’s remained intact (of course, keeping in mind trauma-informed practices where appropriate)? What are the parties’ underlying motives—who had more to lose? Did you hear the same story from multiple disinterested parties and a different story from one individual? All of these questions and more can help an investigator make reasoned credibility findings.

Unless the law, or the organization’s employee handbook or governing policies, require a higher standard of proof, findings of fact should be based on a “preponderance of the evidence,” that is, “Is it more likely than not that ______ did or did not occur.” For each finding of fact, the investigator should be able to produce clear and articulable grounds underlying the finding.

7. The Investigation Report

Finally, and importantly, findings of fact should be memorialized in a written investigation report, which, at a minimum, should include a recitation of the allegations, a description of the investigation methodology, a list of operative policies and procedures, a description of the evidentiary standard, a statement of undisputed facts, factual findings (including the evidentiary grounds upon which the findings are based), and potentially recommendations, depending on the role of the investigator.

While the aforementioned tips generally reflect sound investigation practices, each circumstance is unique, especially in a remote-work environment, where multi-jurisdictional laws graft onto the employer (as state employment laws generally apply based on the jurisdiction in which the employee principally works). Further, each fact pattern is unique. An investigation into a potential misappropriation of federal funds may trigger federal reporting obligations. Significant diversions of assets such as embezzlement and theft are required to be reported on the IRS Form 990. A sexual misconduct investigation involving a California employee may require a host of rights and protections not required in other jurisdictions. And, of course, when, how, and to what extent to keep the nonprofit’s volunteer leadership involved is always a key consideration; generally speaking, keeping at least the entity’s senior volunteer leaders informed (be it the Board Chair, Executive Committee, or full Board of Directors) is certainly prudent, but always with strict confidentiality reminders.

Finally, whether an organization decides to proceed with an in-house investigation, outsource the investigation to an independent third party, or engage an attorney (whether in-house or external), it is crucial that the investigator is knowledgeable about the law and best practices for each of many unique circumstances. In all cases, it is advisable to consult legal counsel throughout the process.

Holly Peterson is Counsel at Tenenbaum Law Group PLLC. She regularly conducts internal investigations for nonprofit organizations and educational institutions on complex employment and governance matters. Holly can be reached at hpeterson@TenenbaumLegal.com.