This article first appeared in edition 07 of Accountancy Futures journal (August 2013).
In 2012, Ward Diesel Filter Systems, a New York state-based company, agreed to pay the US government US$628,000 to settle claims that it submitted false pricing information. Ted Siska, the whistleblower who brought the matter to light, received US$94,200 of the settlement for his trouble.
A year before, Michael Woodford had been dismissed as chief executive of Japan’s Olympus Corporation after querying US$1.7bn of ‘inexplicable’ payments. Woodford eventually won a US$16m payoff for his dismissal.
Around the world, more employees are blowing the whistle – but the way they are treated differs greatly. In the UK, 15% of whistleblowers are dismissed, according to a study of 1,000 whistleblowing incidents by the University of Greenwich. By contrast, in the US, the ‘qui tam’ provisions of the False Claims Act – where a private individual can receive part of the proceeds of a successful prosecution – mean that whistleblowers may be rewarded, sometimes with huge sums. Bradley Birkenfeld, the former UBS banker who provided US prosecutors with information about the bank’s efforts to promote tax evasion – subsequently leading to the government’s recovery of more than US$5bn in taxes from 33,000 tax dodgers – received a US$104m payoff in 2012.
Both the Organisation for Economic Co-operation and Development and the United Nations Convention Against Corruption urge countries to introduce laws, and the number of countries that have adopted serious whistleblowing legislation is steadily climbing. The US has whistleblowing enshrined in several statutes and a support organisation in the National Whistleblowers Center. In the UK, the 1998 Public Interest Disclosure Act (PIDA) provides some protection from employers and is being amended to cover whistleblowers being victimised by co-workers.
In Romania, whistleblowers are entitled to have a member of the media present when they make their allegations, while in South Korea, laws focus on rooting out corruption. Norway protects employees who make practically any kind of criticism of their employer, even if they are complaining about something that’s legal, and South Africa has a watered-down version of the UK’s PIDA. In all, around 50 countries have some kind of whistleblower protection in place, sometimes as part of anti-corruption, employment or freedom of information laws.
But even with a measure of legal protection, deciding to blow the whistle is never easy. ‘If an accountant comes across material that causes concern, he has a dilemma because he needs to be able to accommodate his own professional obligations with those of his obligations to his employer,’ says John Davies, head of technical at ACCA.
‘Any responsible company should provide a procedure whereby any such concerns can be aired and resolved in a way that does not necessarily oblige anyone to disclose sensitive information to a third party,’ he adds. Yet the University of Greenwich found that 83% of workers need to blow the whistle at least twice before senior managers take them seriously.
Woodford says that any whistleblower needs to face the fact that organisations tend to protect themselves. ‘Very few people stand at your side when the proverbial hits the fan; they will distance themselves from you. You’re not going to be liked and sometimes the rights and wrongs of your case can seem an irrelevance.’
It is because of this that Suelette Dreyfus, principal researcher with the World Online Whistleblowing Survey at the University of Melbourne, believes that whistleblower protections are vital both within organisations and in law. ‘If people see whistleblowers are treated badly, few people will be inclined to step forward the next time there is serious wrongdoing,’ she says.
Dreyfus believes that shareholders should press companies to introduce internal procedures. ‘It’s usually in the shareholders’ best interest for there to be strong and meaningfully enforced protections,’ she adds.
It is essential that staff have confidence that their careers won’t suffer, says Dermot Madden, a professional accountant in Ireland’s Office of the Director of Corporate Enforcement. But the ‘greatest impediment’ to effective whistleblowing is the reaction of line managers whose control procedures have failed. ‘This is often the reason why whistleblowers are not rewarded but are often fired or put in a position where they have no option but to leave,’ he says. ‘Therefore, the safeguards for whistleblowers must be set out in law and adequate compensation provided to them if they feel they have no choice but to leave.’
The International Ethics Standards Board for Accountants (IESBA), in co-operation with the International Federation of Accountants (IFAC), is considering proposals that would significantly increase the requirement of accountants to blow the whistle in some clearly defined circumstances. These proposals have caused some controversy
Davies says that professional accountants need to know more clearly where they stand. ‘At the moment, they can think about blowing the whistle but the decision is down to them as individuals,’ he says. ‘That can be a difficult dilemma. I hope the revised ethical guidance from IESBA, when it comes, will give accountants a more solid foundation on whether or not to blow the whistle in different situations.’
Dermot Madden FCCA
Office of the director of corporate enforcement, Ireland
‘Whistleblowing can only be effective if the organisation genuinely allows its staff to be able to say things people don’t want to hear. It cannot be used for personal gain, must be forensic, and must be evidenced. Accountants are in a unique role since they are most likely to have the skills to meet these criteria.’
Peter Bartram, journalist