Federal Bar Council

International Association of Independent Private Sector Inspectors General
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Monitorships, IPSIGs and Independent Investigations:
The Increasing Privatization of the Investigation and Prosecution Functions in Corporate Oversight

Remarks of Hon. Margaret J. Finerty
Getnick & Getnick

October 19, 2005
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            It is my pleasure to be here and to participate on this panel.

            I am standing in for my law partner, Neil Getnick.  He, on short notice, had to travel to Russia where he is working on business integrity and transparency issues.  He is sorry that he could not be here this evening to talk to you about a subject which is near and dear to his heart.  Neil is one of the founding members of the International Association of IPSIGs and is the organization’s long standing President.

            When you mention the word IPSIG to most people their first reaction is, “which foreign language are you speaking?”  Actually, IPSIG stands for Independent Private Sector Inspector General.

            I will give you the “textbook” definition of an IPSIG.  It is an independent, private sector firm (as opposed to a governmental agency) that possesses legal, auditing, investigative, and loss prevention skills, that is employed by an organization (i) to ensure that organization’s compliance with relevant laws and regulations, and (ii) to deter, prevent, uncover, and report unethical and illegal conduct committed by the organization itself, occurring within the organization, or committed against the organization.

            Notably, an IPSIG may be hired voluntarily by an organization or it may be imposed upon an organization by compulsory process such as a licensing order issued by a governmental agency, by court order, or pursuant to the terms of a deferred prosecution agreement. 

            There is not time this evening to discuss in detail the origins and development of the IPSIG concept, but I commend to you the article in your materials entitled, “Report of the Civil Prosecution Committee of the New York State Bar Association Commercial and Federal Litigation Section 1994 on the Independent Private Sector Inspector General” for further information in this regard.

            I will note that the IPSIG concept was developed after extensive research and thorough and thoughtful analysis by a dedicated group of law firms, investigative and auditing firms, academics, and government officials that comprise the founders of the governing body for IPSIGs, known as the International Association of Independent Private Sector Inspectors General.  The IPSIG concept was built upon then-existing models for control and reform of organizations, such as: court-appointed trustees; appointed independent counsel; court-appointed monitors to oversee the activities of corrupt unions under federal racketeering laws; the Federal Guidelines for the Sentencing of Organizations, issued in November 1991; and, the use of special investigative counsel by the SEC pursuant to consent decree.  Examples of specific cases can be found in the 1994 State Bar report. 

            There are important distinctions, however, between these earlier models and what defines an IPSIG.  An IPSIG brings to the monitored organization its unique expertise that integrates four essential skills: (i) legal, (ii) investigative, (iii) auditing, and (iv) loss prevention.  The key is the coordination and integration of these skill sets.  With this combination of skills, the IPSIG is able to monitor and investigate the activities of the organization in order to detect illegal and unethical conduct, to report violations of the law to appropriate law enforcement authorities, to design and implement programs to prevent illegal, unethical and wasteful behavior, and to monitor the implementation of these programs. 

            Also, unlike receivers and some court-appointed trustees, IPSIGs do not perform a managerial function in the monitored organization.  Rather, an IPSIG monitors the activities of the organization’s management.  If you are dealing with an organization that is primarily legitimate and open to reform, the IPSIG may also work with management not only to reform corrupt practices, but also to enhance its productivity through the development of programs and procedures.  If, however, you are dealing with an organization where the culture is primarily illegitimate and hostile to change, the IPSIG’s role may be essentially adversarial and limited to monitoring the activities of the organization and instituting internal controls to prevent bad behavior.

            The hallmark of an IPSIG is its independence.  This is spelled out in the Code of Ethics, instituted by the International Association of IPSIGs, that governs the conduct of IPSIGs.  Even when an IPSIG is voluntarily hired by an organization, it remains independent in every sense.  It is responsible to the public as well as to the monitored company.  Without objective judgment, the IPSIG will lack credibility.  An IPSIG must be free to report violations of the law without constraint and without obtaining the authorization of the organization it is monitoring.  This is essential and any retainer or other agreement entered into between the IPSIG and the monitored organization must spell this out very clearly.  This is not a traditional attorney/client situation where privilege attaches. 
                       
            As I indicated earlier, an IPSIG may be hired voluntarily by an organization, or it may be imposed upon an organization by compulsory process.  Our other speakers will be talking about situations that fall within each of these two categories.
  
            It is important to note that if a voluntary or compulsory process results in the employment of an outside entity to monitor an organization, and that arrangement conforms with the definition of an IPSIG as I’ve just described it (i.e., the monitoring entity possesses legal, auditing, investigative and loss prevention skills, and is truly independent and follows the behavioral guidelines set forth in the code of ethics established by the International Association of IPSIGs), then that monitoring entity is performing as an IPSIG, even if it may be called by another name, such as Integrity Monitor or Independent Counsel.   I will give you an example.    During the 9/11 World Trade Center recovery and clean-up effort, Mayor Giuliani, upon the advice of the New York City Department of Investigation, appointed four Integrity Monitors  to oversee the work of the four construction management companies that were supervising the recovery and clean-up effort.  Because this construction work was billed on a time and materials basis, and due to allegations early on that steel and debris were being stolen from the site, there was a legitimate concern that there was the potential for tremendous abuse and fraud that could lead to the loss of millions of dollars in federal funding.  My firm, Getnick & Getnick, had the honor of being one of the four appointed Integrity Monitors, along with Ed Stier’s firm, Stier & Anderson, and Thacher Associates, and Decision Strategies/Fairfax International -- all founding members of the International Association of IPSIGs.  Each of the Integrity Monitors operated according to the IPSIG model, utilizing legal, investigative, auditing, and loss prevention skills, and maintained total independence in its reporting structure to the government.  There is no doubt that the appointment of Integrity Monitors to oversee the World Trade Center disaster project resulted in substantial cost savings and in the prevention of criminal conduct at the site.  

            Organizations, other than in the case of imposed IPSIGs, are free to voluntarily engage outside companies to perform IPSIG–type services, without allowing the engaged company to independently report wrongdoing. Such a company, however, is not an IPSIG if it does not have the independence and freedom to report violations of law to appropriate authorities.

            I want to close these introductory remarks with a few key points concerning IPSIGs. 

• IPSIGs are good for government and good for the monitored organization.  In light of the government’s limited resources, IPSIGs are a crucial asset to government by acting as its eyes and ears in monitoring organizations that may have committed illegal and unethical behavior in the past but which have the potential for reform and which provide important services to the public.   The cost of the IPSIG is often born by the monitored entity, thus providing further benefit to the public.

• IPSIGs are a crucial asset to those organizations that are sincere in their efforts to reform.  The appointment of an IPSIG provides the opportunity for a company to stay in business by implementing programs to prevent illegal, fraudulent and wasteful practices.    IPSIGs show companies that are open to change that honest business is good business, and that the implementation of programs that guard against illegal behavior results in cost savings and increased productivity.  We have found that often these types of companies are the biggest proponents of the IPSIG concept. 

            The International Association of Independent Private Sector Inspectors General is the recognized body that pioneered the IPSIG concept and that sets and maintains the standards for IPSIG practice, including the guiding Code of Ethics.  If anyone is interested in joining the organization or in learning more about it, we have applications and copies of the Code of Ethics here today for you.  You can also visit the Association’s website at www.iaipsig.org, which will be operational by the end of this month.