The Consultant in the Basement Office

Walk the elements one at a time; do not argue the conclusion first.

1. Material false statement. Strongest theory: the invoices represented an arm's-length vendor charge while the vendor was the approver's own company, and the omission of required disclosure is itself a representation that no conflict existed. Weak if the services were genuinely performed at fair market value - then the falsity lies in the conflict, not in the work, and the claim drifts from fraud toward breach of fiduciary duty and breach of the employment agreement.
2. Knowledge of falsity / scienter. Supported by the incorporation, the three-year duration, and the failure to file a required disclosure he demonstrably knew about (he asked whether "this needs a form"). Undermined by the email, which shows some attempt at transparency.
3. Intent to deceive. Contested. The email is the battleground: "exploring some outside consulting, does this need a form?" is not "I have formed a company and intend to bill you." A factfinder could read it as either a good-faith inquiry or a deliberately vague hedge designed to create deniability.
4. Justifiable reliance. The hospital paid because he approved his own invoices - reliance exists, but it is reliance by the very person who defrauded it. Expect the defense to argue the institution knew or had reason to know.
5. Damages. Strongest if you can show a price premium: obtain comparable quotes for the same commissioning work. Without a premium, damages may be limited to disgorgement of the profit and the cost of the internal review.

Bottom line: this is a strong conflict-of-interest and fiduciary-duty case and a contestable fraud case. Say so, rather than promising the board a fraud verdict.

Different tribunals, different burdens, different audiences.

• Civil fraud: preponderance of the evidence. The hospital needs to prove each element by more likely than not, and can recover compensatory damages, sometimes punitive damages, plus fees depending on statute. The hospital controls the case and can settle.
• Criminal fraud: proof beyond a reasonable doubt. The prosecution controls the case, decides the charge, and must prove intent to a near-certainty. Prosecutors routinely decline commercial fraud referrals where the conduct is real but the intent evidence is thin or the conduct is genuinely arguable as a contractual breach.

Practical consequences for how you write the report:

1. Write one factual report, not two versions. Assume it will be produced in discovery and handed to defense counsel. Every conclusion must be supported by a described document or interview.
2. State the contested elements openly. A report that declares "$1.2 million fraud" and is then met with the director's email loses credibility on everything else, including the parts that are true.
3. Preserve the referral's best evidence: bank records on the consulting company, comparable-pricing data, the disclosure forms for other employees (to show the policy was actually enforced), and the incorporation date relative to the first invoice.
4. Interview the director before anyone characterizes the email. His non-response - and whether he mentioned it upward - determines whether the hospital had knowledge, which is the crux of the reliance element.

The judgment call: referring for prosecution is not the same as asserting the elements are proven. You can recommend the referral while telling the board that the intent element is the exposure, so it is not surprised when a prosecutor sees the same email you did.

Do not assume privilege; it attaches to purpose, not to the label on the file.

• Attorney–client privilege covers confidential communications between the client and counsel made to obtain legal advice. If counsel directed the investigation to provide legal advice, the interview memoranda and communications with counsel can be privileged. If the investigation was an operational or HR exercise conducted by internal audit, and counsel was merely copied, the privilege argument is weak.
• Work-product protection covers materials prepared in anticipation of litigation. It is more limited than privilege - it can be overcome by substantial need - and it does not protect the underlying facts. A witness can always be asked what she said.
• Waiver risk is the practical issue. Broad distribution of the report - to the board, the compliance committee, the operations team, the auditors - erodes both protections. Circulate on a need-to-know basis, mark documents, and keep privileged and business files separate.
• Upjohn warnings. When counsel interviews employees, tell each one clearly that counsel represents the hospital, not the individual, that the conversation is privileged as to the company, and that the company may waive the privilege. Skipping this can both taint the interview and mislead the employee.

Advice for this matter: the defendant already knows the facts, so privilege is unlikely to shield the substance anyway; it may only protect counsel's analysis. Plan the case on the assumption that the report becomes discoverable, and write it accordingly. Also check local rules - in some jurisdictions in-house counsel acting in a business capacity is not treated as providing legal advice at all.