As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Whistleblower program within the Securities and Exchange Commission was launched August 2011. Since that time, 3,335 complaints were received, from which four rewards have been granted, i.e. one Aug 21, 2012 and three June 12, 2013.
But the SEC is not the only program – In March 1867 the Treasury began a form of a Whistleblower Tax program. The IRS program was modified in December 2006 as a result of the Tax Relief and Health Care Act. From 2006 through 2012, 40,110 cases were received, with 1,077 awards paid.
What is of concern is that even though people are reporting issues to the respective regulatory bodies, the conversion from claim to outcome is very low, i.e. 0.1% for SEC and 3% for IRS. The low SEC rate is most likely attributed to the newness of the program. So when the SEC program reaches the seven year mark of the IRS program under review, will the claim rate reach 3%?
Now as more and more companies launch whistleblower programs internally they should tread lightly and consider how they will address issues raised. If a process is established to address a legal or ethical issue raised by an employee, and the process fails, dis-satisfaction will be created. As such, creating an internal program where companies can identify issues and resolve them, prior to them becoming public brand blemishes, may backfire. When a company does not act on information provided, the whistleblower may become unhappy and seek resolution outside the organization in a public forum.
“Markopolos began contacting the SEC at the beginning of the decade to warn that Madoff was a fraud. He sent detailed memos, listing dozens of red flags, laying out a road map of instructions for SEC investigators to follow, even listing contacts and phone numbers of Wall Street experts whom he said would confirm his findings. But, Markopolos’ whistle-blowing effort got nowhere.” (Madoff whistleblower blasts SEC by By Allan Chernoff, Sr. Correspondent, CNN 02.04.2009 CNN Money)
“Interviews with university officials, former players and members of the board, as well as reviews of internal documents and legal records, show that when the most senior Rutgers officials were confronted with explicit details about Mr. Rice’s behavior toward his players and his staff, they ignored them or issued relatively light penalties.” (Rutgers Officials Long Knew of Coach’s Actions by Steve Eder 04.16.2013 New York Times)
The SEC and Rutgers will be attempting to repair their respective images for some time.
While not every report of unethical or illegal activity will be valid, every claim should be treated the same way, until the results of a qualified investigation are finalized. When training employees on the existence of a program, where they may freely lodge complaints without fear of retaliation, let them know that there is an established process that will be followed to investigate each and every claim.
Prior to embarking on establishing an internal Whistleblower Program, engage a Labor Attorney. Understand the Federal Laws, as well as the laws within the states you operate. Note – the Department of Labor has their own Whistleblower program.© Copyright 2013 Regis Quirin, All rights Reserved. Written For: CFO Tips - What you need to know, to be a CFO TODAY!