Colorado Risk Mitigation Firm Responds to Wall Street Journal Article Discussing Whistleblowing Rewards from the Government
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Act), passed in July of this year, created financial incentives for employees to report to the government their company’s wrongdoings.
Greenwood Village, CO, November 12, 2010 --(PR.com)-- Business Controls, Inc. (BCI), the leading risk mitigation firm in the world, responded today to a Wall Street Journal article posted on November 1, 2010, entitled "New Law Prompts Whistle Blowing."
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Act), passed in July of this year, created financial incentives for employees to report to the government their company’s wrongdoings. The Act included wrongdoings not previously encompassed by laws for whistle blowing, including securities and accounting fraud and bribery. An article published in the Wall Street Journal on November 1, 2010, suggests that this Act will undermine company’s internal mechanisms for reporting fraud and other such misconduct[i]. The financial incentives offered by this Act encourage employees to supersede internal reporting mechanisms and to initially turn to the government.
The response to this Act has been varied. A labor and employment lawyer interviewed by the Wall Street Journal suggests that companies should themselves offer employees a monetary reward, such as $1,000, for bringing forward concerns. The arguably wiser, President of the National Association of Directors, Kenneth Daly, suggests that the government agencies should not investigate whistleblower claims and provide a financial reward, if the employee failed to first report the claim internally.
While encouraging employees to report wrongdoings is noble, the method by which the Act is attempting to achieve this goal is flawed. Specifically regarding the Securities and Exchange Commission (SEC), the Act allows for the SEC,
“to not disclose records or information that have been obtained for uses such as surveillance, risk assessments, or other regulatory and oversight activities.”
The SEC allows for an exception regarding judicial or congressional inquiry. Essentially, this places employers in an impossible situation. Should an employee report concerns directly to the SEC without also sharing those concerns with the employer, the employer may very well not learn of the wrongdoing until court proceedings have been initiated. Further, the SEC has no obligation to provide the employer with information regarding the complaint so as to allow the employer to remedy the situation prior to litigation or official sanction.
The question remains; how can employers encourage employees to report allegations internally, in the face of potentially huge monetary rewards offered by the government. A good starting point for employers is to create a culture which encourages employees to report misconduct. Employers then need to provide a method for which employees can report concerns and remain anonymous, such as through a hotline. If the process for internally reporting allegations of wrongdoing is easy to access as well as provides sufficient protection to the reporting party, employees will be more likely to first use internal mechanisms. Additionally, when an employer learns of allegations of wrongdoing, the employer should immediately address the allegation. Training managers and supervisors as to the importance of these allegations is key for both the response to as well as prevention of such claims. An employee whose experience is that the employer fails to act on reports of wrongdoing is much more likely to look outside the organization for remediation than if their employer responds promptly and appropriately. Lastly, discipline must be consistent with policy and across employees. However, if an employee’s motivation for reporting wrongdoings is solely financial, there is little an employer can do to prevent those employees from reporting directly to the government, as few employers can offer similar financial rewards; nor should they.
[i] Scannell, K. (Contributor). (November 1, 2010) New law prompts whistle blowing. The Wall Street Journal. Retrieved from http://fpn.advisen.com/articles/article1310611621806088309.html
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The Dodd-Frank Wall Street Reform and Consumer Protection Act (Act), passed in July of this year, created financial incentives for employees to report to the government their company’s wrongdoings. The Act included wrongdoings not previously encompassed by laws for whistle blowing, including securities and accounting fraud and bribery. An article published in the Wall Street Journal on November 1, 2010, suggests that this Act will undermine company’s internal mechanisms for reporting fraud and other such misconduct[i]. The financial incentives offered by this Act encourage employees to supersede internal reporting mechanisms and to initially turn to the government.
The response to this Act has been varied. A labor and employment lawyer interviewed by the Wall Street Journal suggests that companies should themselves offer employees a monetary reward, such as $1,000, for bringing forward concerns. The arguably wiser, President of the National Association of Directors, Kenneth Daly, suggests that the government agencies should not investigate whistleblower claims and provide a financial reward, if the employee failed to first report the claim internally.
While encouraging employees to report wrongdoings is noble, the method by which the Act is attempting to achieve this goal is flawed. Specifically regarding the Securities and Exchange Commission (SEC), the Act allows for the SEC,
“to not disclose records or information that have been obtained for uses such as surveillance, risk assessments, or other regulatory and oversight activities.”
The SEC allows for an exception regarding judicial or congressional inquiry. Essentially, this places employers in an impossible situation. Should an employee report concerns directly to the SEC without also sharing those concerns with the employer, the employer may very well not learn of the wrongdoing until court proceedings have been initiated. Further, the SEC has no obligation to provide the employer with information regarding the complaint so as to allow the employer to remedy the situation prior to litigation or official sanction.
The question remains; how can employers encourage employees to report allegations internally, in the face of potentially huge monetary rewards offered by the government. A good starting point for employers is to create a culture which encourages employees to report misconduct. Employers then need to provide a method for which employees can report concerns and remain anonymous, such as through a hotline. If the process for internally reporting allegations of wrongdoing is easy to access as well as provides sufficient protection to the reporting party, employees will be more likely to first use internal mechanisms. Additionally, when an employer learns of allegations of wrongdoing, the employer should immediately address the allegation. Training managers and supervisors as to the importance of these allegations is key for both the response to as well as prevention of such claims. An employee whose experience is that the employer fails to act on reports of wrongdoing is much more likely to look outside the organization for remediation than if their employer responds promptly and appropriately. Lastly, discipline must be consistent with policy and across employees. However, if an employee’s motivation for reporting wrongdoings is solely financial, there is little an employer can do to prevent those employees from reporting directly to the government, as few employers can offer similar financial rewards; nor should they.
[i] Scannell, K. (Contributor). (November 1, 2010) New law prompts whistle blowing. The Wall Street Journal. Retrieved from http://fpn.advisen.com/articles/article1310611621806088309.html
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Contact
Business Controls, Inc.
Ubaldo Ciminieri
303-526-7600
businesscontrols.com
Ubaldo Ciminieri
303-526-7600
businesscontrols.com
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