The earliest formal example of an Internal Affairs department in the New York Police Department was the "Confidential Squad" set up in 1913 in the wake of the Becker scandal, in which it emerged that one of the most prominent police lieutenants in the NYPD, in charge of policing gambling in the city, had in fact been taking huge sums of money to protect gambling houses from police raids (and had possibly ordered the murder of a disgruntled gambler who threatened to expose the racket.)

The establishment of the squad was a project of the reform administration voted in as a result of the scandal, and it reflected the need to secure much better evidence to allow prosecution of malefactors - a problem established by the relative failure of successive public enquiries into police corruption in New York to secure significant convictions.

I wrote about the Confidential Squad in my book on the Becker case, Satan's Circus (2007) as follows:

Of course, corruption still existed. Few of New York’s thousands of crooked cops were punished in the wake of Becker’s trials; the Curran Committee, which finally delivered its report in 1913, struggled (as had the Lexow investigation before it) to place credible witnesses on the stand, and its 52 recommendations — which included a more secure tenure for the Police Commissioner and the creation of a central complaints bureau — were in any case voted down by the Democrat majority on the Board of Aldermen. Nearly two–thirds of Curran’s proposals were, in fact, quietly waved through a few months later in order to sweeten Tammany’s record on corruption. But the $40,000 expended on his hearings resulted in fewer than 20 indictments, and though four inspectors and six other officers did go to jail for grafting, and another 20 were either sacked or resigned from the force, the great majority of guilty officers escaped punishment again.

Over the next four years a new department of internal affairs, known as the Confidential Squad and led by the freshly–promoted Captain Costigan, uncovered hundreds of cases of corruption, most still involving the levying of protection payments from brothels. Tellingly, if unsurprisingly, the men drafted to the Squad were highly unpopular among their colleagues. ‘Its members were called “rats”,’ one Squad officer, future Police Commissioner Lewis Valentine, recalled. ‘I have been called that name many times.’ When — with the awful inevitability that afflicted all New York reform administrations — Mayor Mitchel was voted out of office at the end of 1917, the Confidential Squad was instantly shut down.

The "Costigan" referred to in the passage above was a very interesting anomaly among the then ranks of the NYPD, in which institutionalised corruption was incredibly common, at least in Manhattan:

Short of cash but long on opportunities, few New York patrolmen were entirely clean. It was simply unrealistic to expect the police to pay for their appointments to the force and do their duty in a city that was corrupt from top to bottom, repay the politicians who did them favours, enforce the terms of the graft, and take home their own indifferent pay without seizing the chance to earn a little extra for themselves.

A scattering of officers remained famous for their rectitude — men such as Captains Harkins and Gallagher, who quietly donated most of their wages to the poor, and ‘Honest Dan’ Costigan, who cleaned up Chinatown, turning down thousands of dollars worth of bribes in the process. The fact remains, however, that Costigan’s incorruptibility was sufficiently unusual to earn him a nickname, and the pressures on a recruit’s pay packet made most happy to accept the odd gratuity. An apple exacted from a street vendor whose cart stuck out an inch or two onto the pavement, a pint of beer served free by a saloon found open after closing time: few thought such ‘gifts’ really wrong. ‘Cops,’ [NYPD Captain Cornelius] Willemse wrote with careful understatement,

‘pick up an extra dollar now and then, to be sure, but they usually spend it as fast as they get it. I was no exception to this rule. I’m not trying to pose as a saint or a reformer, or one who was shocked by anything I saw. If I found an open door on post, or picked up a man for safe keeping while helplessly drunk, found a lost child or warned a man of a violation before taking action, and they felt like slipping me a few bucks, I took it and my conscience didn’t bother me then, nor does it now. Of course there are cops who have never taken a dollar, at least I’ve heard about them, but I never saw one.’

And later in the notes to the same book, I observe:

Costigan, wrote Commissioner McAdoo, was ‘one of those rare men who are naturally, aggressively, and absolutely honest. He could have been made independently rich in a short time had he wished to do so. He was threatened and bullied and tempted in a thousand ways, and still remained an honest and, if anything, a better man than when he began his work. He was, withal a modest man, who never boasted, and talked little of himself.’