Independent research organizations agree: whistleblowers are the single most important corporate resource for detecting and preventing fraud.
Still, many companies maintain a knee-jerk reaction to silence employees who raise concerns. Companies are starting to re-evaluate this dangerous bias, and they are finding that improvements to integrity improve their bottom line.
PricewaterhouseCoopers (PWC) surveyed the chief executive officers, chief financial officers and responsible compliance executives from over 5,400 companies in 40 countries. The 2007 PWC study found that internal "controls" designed to detect fraud were "not enough" and that whistleblowers needed to be encouraged to report wrongdoing and protect from retaliation. The study found that 43% of corporate fraud was uncovered by whistleblowing related activities:
The PPWC findings are supported by similar findings made by the Association of Certified Fraud Examiners (ACFE). In the 2008 Report to the Nation on Occupational Fraud and Abuse, the ACFE examined 959 cases of fraud related to American corporations. They recognized that "almost all fraud involves the attempted concealment of the crime." Consequently, insiders (i.e. whistleblowers) were viewed as essential for any effective anti-fraud program. Significantly, the ACFE found that 46% of all frauds were uncovered by tipsters, a statistic remarkably similar to the PWC findings (43%) and strongly endorsed corporate cultural changes designed to encourage whistleblowers stating "employees should be trained to understand what constitutes fraud and how it harms the organization."
In 2007, the Ethics Resource Center (ERC) issued its National Government Ethics Survey. The findings of the ERC survey of federal employee mirror those of PWC and the ACFE. However, in relation to detecting government misconduct, some of the ERC's conclusions are very disturbing. Based on its survey the ERC found that "government employees are increasingly working in environments that are conducive to misconduct" and "signs point to a future rise in misconduct if deliberate action is not taken."The study also found that of those who reported misconduct, only 83% reported it to their supervisor or managers - which is not protected under the current federal Whistleblower Protection Act. The ERC found that only 6% of federal employees who disclosed misconduct were willing to report that misconduct to a "hotline" or outside of their agency.
The False Claims Act is the premier whistleblower law. Objective statistics published every year by the US Department of Justice Civil Fraud Division unquestionably demonstrate its success. The amount of overall civil recoveries obtained by the United States has dramatically increased from 1986 (prior to the whistleblower rewards program) to $ 2 billion in 2007 (after the re-implementation of the program). Moreover, it is also now well documented that whistleblower disclosures are responsible for the majority of all federal fraud recoveries from dishonest contractors.
The importance of using financial incentives to promote corporate fraud disclosures was underscored in a scholarly study of published in the Boston University Law Journal . This study analyzed several possible methods of incentivizing whistleblowing and concluded that a qui tam model provides the greatest incentive for the whistleblower while exposing information that the government would not be able to detect on its own. "Qui tam cases bring out important inside information. Potential qui tam plaintiffs can offer information about inchoate or ongoing malfeasance of which law enforcement is unaware." After examining the potential disincentives that qui tam whistleblowers may confront, the article notes that "the bounty a relator stands to gain does, in many cases, outweigh the disincentives to being a whistleblower."
The PWC, ACFE, and ERC studies, along with the statistics on the False Claims Act, confirm with reliable scientific data that strong laws and polices should exist to protect and encourage whistleblowers. There is no doubt that whistleblowers objectively help the corporations and the government agencies for which they work. The deep-seated cultural bias against whistleblowers exhibited in many agencies is not only archaic, but also counterproductive. If the government is truly serious about detecting and preventing fraud, waste and abuse, and ensuring that the public safety is protected, effective anti-retaliation laws must be enacted which encourage, reward and protect whistleblowers.
For more information on these studies and the contribution whistleblowers make to fraud detection and prevention please read the policy paper "Why Whistleblowing Works And What Congress Must Do About It."
Dodd-Frank Wall Street Reform and Consumer Protection Act: Conference Report
23(A) - qui tam for whistleblowers under the Commodities Exchange Act
23 sub (H) - anti-retaliation provision, which permits whistleblowers to go to federal court if they are retaliated against for filing fraud claims under the Commodities Exchange Act
21F(a) qui tam for securities fraud: new qui tam rewards and incentives for whistleblowers who blow the whistle on securities violations
21F sub (H)(1) anti-retaliation provision for employees who file qui tam claims under securities law
(H)(1)(A)(iii) anti-retaliation for employees who make disclosures under SOX, any violation of SEC art or who make protected disclosures under obstruction of justice act
Claims filed in federal court - employees entitled to double back pay
(B) statistical ratings organizations (Moody's & Standard & Poor's) now protected under SOX anti-retaliation provisions (C) SOX whistleblower protection act enhanced and amended to increase the statute of limitations, guarantee jury trials, and prohibit mandatory arbitration agreements
Section 929A - SOX anti-retaliation law is clarified to ensure subsidiaries of publicly traded companies are fully protected under the whistleblower protection law
Section 966 - Federal employees are losers under the Act and regulators obtain no protections except a glorified "suggestion box"
Section 1057 - New whistleblower protection for employees who make disclosures to the newly created consumer protection board
Section 1079B(c) - Amends the False Claims Act anti-retaliation law to provide for universal national 3 year statute of limitations to file wrongful discharge claims under the False Claims Act.
Hearing on Proposals to Fight Fraud and Protect Taxpayers: False Claims Act Corrections Act of 2009
By Joseph E. B. White, President & C.E.O. Taxpayers Against Fraud
House Committee on the Judiciary, April 1, 2009
NWC Objects to Proposed Rules After SEC Admits the Rules Will Result in "Forgone Opportunities for Effective Enforcement"Washington, D.C. November 22, 2010. Today, the National Whistleblowers Center (NWC) voiced its strong opposition to Proposed Rules submitted by the Securities and Exchange Commission implementing the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
November 3rd SEC public meeting will address whistleblower provisions
Washington, D.C. November 2, 2010. Yesterday, the National Whistleblowers Center submitted comments to the Securities and Exchange Committee opposing recommendations by the “Corporate Lobby” that threaten the integrity the Dodd-Frank Act’s whistleblower provisions.
February 27, 2008. Washington, D.C. The Senate Committee on the Judiciary held a hearing entitled “The False Claims Act Correction Act (S. 2041): Strengthening the Government's Most Effective Tool Against Fraud for the 21st Century” on Wednesday, February 27, 2008. Stephen M. Kohn, President of the National Whistleblowers Center, submitted written testimony to the committee which was entered into the record of the hearing. View Stephen Kohn’s testimony here.
Under little-noticed new provisions of the Dodd-Frank Wall Street reform law, whistleblowers like Markopolos who alerted the SEC to Bernard Madoff's Ponzi scheme will for the first time be entitled to collect between 10- and- 30 percent of the money recovered by the government.
By Steve Eder
NEW YORK, June 5 (Reuters) - John P. McMurray made it clear to his Countrywide Financial Corp bosses that they were playing a dangerous game with risk. But they didn't listen. Even so, he is being called a hero.
By Adam Smith
TIME, May 20, 2009
By James Rogers
TheStreet.com, April 27, 2009
Sen. Patrick Leahy Press Release, April 25, 2009
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