Employees in the auditing and accounting industry face serious challenges to raising the alarm about financial fraud by clients or by their own firms. While the Big Four firms, KPMG, Ernst Young, PricewaterhouseCoopers, and Deloitte, provide consulting advice on whistleblower channels, allegations from former employees suggest that these companies do not follow the advice they publicly espouse, and the threat of career-ending retaliation prevents whistleblowers from successfully raising concerns about financial fraud internally.
Poor auditing and aggressive accounting practices harm investors and taxpayers. As climate-related financial risks grow, these practices could also damage the climate.
The track record of the auditing industry suggests major firms may not be able to catch even the most blatant fraud in the industries driving climate change, including the fossil fuel and logging industries, and the accounting industry has been tied with major tax evasion scandals in these industries. As climate risks grow, auditing and accounting companies unable or unwilling to spot new risks could protect the industries driving climate change from financial consequences and leave investors in the dark about climate and sustainability risks.
Whistleblowers in the auditing and accounting industry could be essential to protecting taxpayers, investors, and the climate from financial fraud, and whistleblowers may have more rights than they know. U.S. whistleblower laws provide strong external channels for auditing and accounting whistleblowers to report fraud. Whistleblowers can report securities fraud, tax fraud, or other financial crimes directly to U.S. law enforcement, while keeping their identities confidential. Whistleblowers whose original information leads to a successful prosecution can also qualify for a financial reward.
However, whistleblower laws are complex, and it is recommended that whistleblowers consult with a qualified attorney before acting on any information about potential wrongdoing. Through its Legal Assistance Program, the National Whistleblower Center helps connect would-be whistleblowers to attorneys specializing in whistleblower law.
NWC works with an independent public interest law firm, the National Whistleblower Legal Defense and Education Fund (“Fund”), which provides a secure intake form that allows whistleblowers to submit basic information about their case on a confidential basis.
Potential whistleblowers looking for a whistleblower attorney are encouraged to submit their concerns to the Fund’s intake site. Once submitted, the intake form will be reviewed by a highly qualified whistleblower attorney, who may make one of several recommendations.
Potential whistleblowers have more rights than they may think. In recent years, a powerful suite of whistleblower laws has been enacted in the United States to enable whistleblowers to report wrongdoing confidentially and to receive financial rewards for contributing to successful prosecutions.
The Dodd-Frank Act allows whistleblowers from any country to confidentially report information about securities fraud. Whistleblowers can report fraud at any publicly traded company, regardless of the company’s country of incorporation or operation. Whistleblowers who provide original information to the Securities and Exchange Commission (SEC) that leads to a successful prosecution can receive between 10% and 30% of monetary sanctions that exceed USD$1 million.
While the SEC generally excludes external auditors and accountants from becoming whistleblowers, there are several key exceptions. External auditors and accountants can become whistleblowers if:
- They have a reasonable basis to believe that disclosure of the information to the SEC concerning material violations is necessary to prevent the relevant entity from engaging in conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors.
- They have a reasonable basis to believe that the relevant entity is engaging in conduct that will impede an investigation of misconduct related to material violations.
- They have informed a superior in their firm about improper or illegal activity by the client and the firm has failed to report this to the SEC.
The Internal Revenue Service (IRS) also allows whistleblowers to report tax violations. Any individual who is able to obtain credible information of a major tax fraud can file an IRS whistleblower claim, including outside contractors. Under the IRS whistleblower program, if there is a successful prosecution that meets the financial qualifications (over $2 million in taxes, penalties, and interest OR gross income over $200,000), the whistleblower will be entitled to an award of between 15 and 30 percent of the total amount collected by the government.
Given the growing complexity of fraudulent financial schemes, law enforcement may struggle to identify and prosecute fraud without access to inside information. Whistleblowers like Bradley Birkenfeld and Antoine Deltour have shown the powerful role that whistleblowers can play in revealing fraudulent global financial schemes, and auditors and accountants could play a crucial future role in protecting taxpayers, investors, and the climate from financial fraud. Thanks to these powerful U.S. laws, auditors and accountants can protect their identity while blowing the whistle, and qualify for a financial reward.