When an internal fraud audit is launched within a company, many executives, employees, and stakeholders believe their cooperation will shield them from trouble. But the reality is far more dangerous—what starts as a seemingly routine corporate review can quickly escalate into a full-blown criminal investigation. And what you say during that audit could come back to haunt you in a courtroom.
Internal Audits Are Not Always Internal
While internal audits are often portrayed as private corporate matters, they can serve as the foundation for law enforcement involvement. If a company uncovers signs of fraud—such as falsified invoices, misallocated funds, or compliance violations—it may be legally or contractually obligated to report these findings to federal or state agencies. In some cases, third-party auditors or general counsel may even proactively alert prosecutors.
This means that anything you say or admit during the internal audit phase may be shared with law enforcement. Worse yet, the protections you might expect in a criminal investigation—like Miranda rights or access to an attorney—usually don’t apply during an internal audit.
You’re Not Always Warned About the Risk
Unlike formal law enforcement interviews, company-led interviews during internal audits don’t have to advise you of your rights. You may be asked to “answer a few questions” in a conference room with an auditor or compliance officer, under the guise of internal resolution. But these sessions are often recorded, transcribed, or summarized in reports that become Exhibit A in a future criminal indictment.
Even well-meaning employees trying to “clear things up” can end up making damaging admissions. Something as simple as explaining why a transaction was backdated or offering an unofficial justification for a misclassification can be spun as evidence of intent to defraud.
How a Criminal Probe Can Begin Behind the Scenes
Internal audits are often framed as routine company procedures, but for executives and employees, they can be the quiet beginning of something far more serious. If auditors or in-house legal counsel uncover suspicious financial activity, their next step may be to shield the company—not you. This can mean voluntarily alerting federal authorities in an effort to minimize corporate liability. Unfortunately, you may have no idea this is happening until it’s too late.
Here’s how a criminal probe can quietly take shape before you’re even aware you’re under investigation:
- Initial Internal Review: Company auditors or compliance teams flag irregularities such as inflated invoices, suspicious reimbursements, or unauthorized transactions.
- Involvement of In-House Counsel: Legal departments assess whether the conduct could expose the company to liability and may recommend disclosure to authorities.
- Voluntary Disclosure: To avoid penalties, the company may report findings to the Department of Justice (DOJ), Securities and Exchange Commission (SEC), or other agencies.
- Cooperation Agreements: In some cases, companies enter into agreements to fully cooperate with authorities in exchange for leniency, which can include sharing internal communications, emails, and even your statements.
- Quiet Evidence Collection: Meanwhile, investigators may start building a case without your knowledge—subpoenaing records, interviewing vendors, or monitoring communications.
- You’re the Last to Know: By the time you’re contacted, there may already be a mountain of documents, emails, and internal reports implicating you in alleged misconduct.
This is why it’s critical to treat any internal audit seriously and speak with an experienced business fraud attorney early. Simmons & Wagner—former Orange County District Attorneys—can assess your exposure, protect your rights, and help prevent a corporate audit from turning into a federal indictment.
Protecting Yourself Starts Early
If you become aware of an internal fraud audit at your company—especially one involving transactions you were part of—it is absolutely essential to speak with an experienced business fraud defense attorney before participating. Do not assume HR or compliance is on your side. Their loyalty is to the company, not to individual employees.
At Simmons & Wagner, we’ve seen firsthand how internal investigations evolve into federal prosecutions. As former Orange County District Attorneys, we understand how prosecutors build cases—and how to dismantle them. We advise clients early in the process, helping them understand their rights, limit exposure, and avoid making statements that could trigger criminal charges.
Cooperation Without Counsel Is a Risk
Internal audits may seem less intimidating than a police interrogation, but the stakes are often just as high. Cooperating without legal guidance can open the door to charges of wire fraud, embezzlement, conspiracy, or other white-collar crimes. Don’t make the mistake of underestimating the situation.
If your company is conducting a fraud audit—or if you’ve been asked to provide documents or sit for an interview—contact Simmons & Wagner immediately. The earlier you have legal protection, the better your chances of avoiding devastating consequences.