Corporate Whistleblowers: Whistleblowers Are The Single Most Important Corporate Resource For Preventing Fraud

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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 $2.9 billion in 2015  (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 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 policies 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.”

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Sarbanes-Oxley Act

In the wake of the corporate scandals that rocked Wall Street in early 2000, the National Whistleblower Center successfully urged Congress to enact protections for corporate whistleblowers. These protections, enacted into law as part of the Sarbanes-Oxley Act, are among the strongest and most effective federal whistleblower laws. In addition to working with Congress in order to ensure that the intent behind the Sarbanes-Oxley Act is followed by the current administration, NWC continues to provide assistance to corporate employees who expose financial fraud.

Visit the Whistleblower Protection Blog for updates on SOX cases and issues.

Confidentially Report Corporate Fraud

If you have information related to fraudulent corporate activity, submit a report using our secure, confidential intake form, and our attorneys will review your case for free. The Whistleblower Legal Assistance Program helps connect whistleblowers with legal whistleblower attorneys. You can get the help you need by submitting the information you have to appropriate law enforcement officials and learn about your eligibility for monetary rewards under the law.

 

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