While the idea of reporting unethical conduct seems simple, the act of blowing the whistle can itself be complicated for accounting and finance professionals. Some companies have established procedures for how to report misconduct internally, and professional codes of ethics also offer guidance and suggestions for reporting unethical behavior internally or externally. There also are regulatory and legal protections for whistleblowers under certain circumstances. To fulfill their professional obligations—and to ensure that they’re protected, when applicable—whistleblowers should become aware of relevant procedures before acting.
Eva Tsahuridu, associate professor and industry fellow in the school of accounting at RMIT University, says that understanding the legal and regulatory obligations and protections afforded is important, as these vary in different countries and sectors. “We expect professionals not to be involved with unethical conduct and to do something when they identify unethical or illegal conduct in organizations, not be silent bystanders,” Tsahuridu says. “Accounting and finance professionals have legal obligations to report illegal conduct.
“We would expect them to do something to stop the illegal activity and safeguard the interests of the organization and its stakeholders and thus act in the public interest,” she says.
In the United States, government agencies such as the Occupational Safety and Health Administration and the U.S. Securities & Exchange Commission (SEC) will provide financial rewards to whistleblowers who provide information that leads to a conviction or financial penalty.
Jordan Thomas, partner at the law firm Labaton Sucharow LLC, says he advised clients who were awarded $83 million for assisting the SEC in its $415 million settlement with Merrill Lynch. The bank had violated consumer-protection rules through a long-running scheme in which it engaged in complex options trades that artificially reduced the amount it needed to keep in its reserve accounts, putting customers’ money at risk. In another recent action, two individuals reported an accounting fraud at Orthofix, a medical device company.
“After noting something fishy in the Orthofix earnings reports, the financial analysts spent months studying the company and its numbers to get their arms around a large-scale accounting fraud,” Thomas says. “We were retained to represent the whistleblowers in their submission to the SEC, for which they’re now eligible for a multi-million-dollar award.”
A culture of integrity can inoculate the workplace, protecting customers, colleagues, and a hard-earned reputation, Thomas says.
The Ethics & Compliance Initiative’s 2018 Global Business Ethics Survey found that compared to personnel working in strong ethical cultures, employees in weak cultures are three times more likely to say they experienced pressure to compromise standards, three times more likely to say they observed misconduct, 41% less likely to report observed misconduct, and 27% more likely to say they experienced retaliation after reporting misconduct.
“What looks like a little slip, a fudged invoice, a favor from a contact abroad…behind the hunch of bad ethics might be a very elaborate scheme that violates numerous federal laws,” Thomas says. “And what qualifies as a violation of law or regulatory misconduct isn’t always clear.
“The ‘see something, say something’ rule applies regardless of whether it looks like a clear violation of the law or not,” he says.
INTERNAL REPORTING
Having a whistleblowing program that encourages employees to report unethical conduct internally is essential for good governance, risk mitigation, and oversight. Whistleblower programs can drive culture change and give companies a competitive advantage.
A 2019 George Washington University study, Evidence on the Use and Efficacy of Internal Whistleblowing Systems (bit.ly/37Fqmj2), found that companies with a whistleblowing program achieved greater profitability and worker productivity, increased access to capital, and better talent retention. In addition, they experienced fewer reports to regulatory bodies and other authorities. Further, the research found that companies with more internal whistleblower reports tend to face fewer fines, smaller aggregate amounts of fines, fewer lawsuits, and smaller aggregate amounts of settlements.
“Companies must ensure that there’s a system for whistleblowers to reach out internally for internal controls and accounting issues,” says Shannon Walker, founder/CEO of WhistleBlower Security. “The scope has broadened to all types of unethical behavior.”
There needs to be specific language that lists the types of misconduct that should be reported via the company’s internal whistleblower system and spells out the protections that are in place. Top management must make sure employees are trained on it and encourage them to speak up if they witness wrongdoing.
“If companies don’t have an internal whistleblower program, then employees will reach out to external entities to report unethical conduct—it’s much better if you can get the information first and get a handle on it internally,” Walker says. “It’s a win-win: Employees feel safe coming forward, and the organization gets the information they need to deal with various situations.”
ENSURE PROTECTIONS
Under the rules of the SEC Whistleblower Program, if an employee reports misconduct in good faith, then an employer can’t discharge, demote, suspend, threaten, harass, or discriminate against a whistleblower, regardless of whether the reported violations are proven.
“The SEC first flexed this muscle in 2014, when the Commission took its first action against a company for retaliating against a whistleblower, our client, who had reported prohibited transactions first to his superiors and ultimately to the SEC,” Thomas says.
There’s a caveat. In the wake of a recent Supreme Court decision, Digital Realty Trust v. Somers, internal reporting doesn’t trigger the antiretaliation provisions of the SEC Whistleblower Program. An employee must first report directly to the SEC to get protection.
IMA ETHICS HELPLINE
For clarification of how the IMA Statement of Ethical Professional Practice applies to your ethical dilemma, contact the IMA Ethics Helpline.
In the U.S. or Canada, dial (800) 245-1383. In other countries, dial the AT&T USA Direct Access Number from www.usa.att.com/traveler/index.jsp, then the above number.
The IMA Helpline is designed to provide clarification of provisions in the IMA Statement of Ethical Professional Practice, which contains suggestions on how to resolve ethical conflicts. The helpline cannot be considered a hotline to report specific suspected ethical violations.
January 2020
