This article was first published in the November 2012 International edition of Accounting and Business magazine.
Corporate whistleblowing in India is on the rise, and now foreign accounting and advisory firms are offering whistleblowing services to forward-looking companies seeking to stamp out corruption, fraud and financial malpractice.
Arpinder Singh, partner and national director for fraud investigation and dispute services at Ernst & Young India, underlines how common whistleblowing is becoming. ‘Eighty per cent of our [fraud-related] investigations start from whistleblower complaints,’ he says.
Since 2011, EY has been providing outsourced whistleblower services to its clients in India and is upbeat about its increasing demand. ‘Many Indian companies are going global and want to demonstrate good business practices,’ Singh told Accounting and Business.
To set up a whistleblower system, EY carries out a series of tasks starting from advising its clients on the required policies, procedures and protocols. After putting in place a basic tip-off structure, it develops a fraud response plan, which includes a system to categorise and prioritise complaints.
However, EY does not operate its own receiving and processing system for clients. Rather it works with three international call centre agencies (which Singh prefers to remain anonymous). EY recommends them to its clients, which make their choice on the basis of price, commercial need or other relevant factors. The companies and the agencies deal directly with each other in routine matters without involving EY.
These agencies receive complaints through website posts, email, voicemails and manned hotlines. Singh says that their hotline operators are specially trained to make callers comfortable and to source comprehensive and complete information.
However, despite this progress, there are doubts about the relevance of call centres for whistleblowing services. Amit Paul, who founded Corporate Whistleblower Initiative (CWI) in 2010 and provides comprehensive whistleblowing services to various Indian companies, rejects a phone call-based system as ‘people fear that their voices may be recorded’. As a result, CWI receives complaints only through its website.
Indeed, the fear of reprisals if a whistleblower’s identity is revealed is considered to be the single biggest deterrent for tip-offs. And this is a volume game. According to Singh, numbers of calls are critical to judge the success of a service; as a rule, 80% of complaints do not require any action, so the more calls received, the more real scams are uncovered, he says.
It is also important that complaints-making procedures are kept simple. On CWI’s website, whistleblowers use their respective company-identifying codes, which have already been circulated among the whole staff. The whistleblower then creates a password, keys in his complaint and receives a unique identification key. This key is used during re-login to check for a response.
Shailesh Haribhakti, chairman of Mumbai-based public accounting firm BDO India, says companies are increasingly more concerned about stopping fraud than being embarrassed about being fraud victims: ‘It is no longer a taboo,’ he says, noting that ‘more frauds are getting reported’.
Haribhakti, who is also an independent director on the boards of 15 publicly listed Indian companies, says that many of these corporations are thinking of outsourcing the receipt and processing of complaints. ‘Whistleblowing outsourcing is phenomenally attractive and getting more and more popular’, he says.
In the Indian banking sector for example, criminal cases involving US$720m were registered by the country’s Central Bureau of Investigation (CBI) in 2011. However, in the first seven months of 2012 this figure had already topped US$450m, the CBI’s director, Amar Pratap Singh, said at the recent Annual Conference of Chief Vigilance Officers of Public Sector Banks and Financial Institutions.
Singh attributes this to a shift of attitude among Indian employees, especially in the past year, who are now less likely to tolerate fraud. He says that until recently people were ‘less agitated’ on noticing corrupt practices, but a recent mass anti-corruption political campaign in India had prompted a sea-change in opinion towards honesty in business and government dealings.
Kiran Bedi, a former police officer and a leading figure in the nationwide anti-corruption movement, agrees that whistleblower systems can be an important way of tackling private sector corruption. However, she says that most corporate corruption is ‘related to dealings with government’, such as securing official permissions, contracts, licences, assessments, applications of discretion and receiving the due payments.
This public corruption is likely to be more resistant to corporate whistleblower mechanisms as corruption and bribes to officials are still generally perceived as a necessary evil for doing business in India. Still, whistleblower complaints are capable of busting big frauds, especially those perpetrated by senior corporate executives. This is because top management is not involved in complaint evaluation, in theory at least.
In most cases companies have an ethics committee assessing complaints, operated by human resources, internal audit and legal compliance executives, who decide on the necessary response.
Some companies of course establish their own systems: Procter & Gamble India said in its annual report in July 2011 that its independent Alertline receives concerns about violations of its Worldwide Business Conduct Standards. These calls are reported to its corporate security and legal personnel for appropriate investigation and follow-up action.
Meanwhile, EY is reporting success with its corporate fraud investigation services in India. Singh recalls a case involving a long-serving and well trusted senior sales manager, working in a local office of a multinational company. A junior female employee sharing a cubicle with the fraudster reported overhearing frequent suspicious telephonic conversations. The phone calls were always made after office hours and the fraudster used to discuss orders from companies which were not clients of the multinational.
Before questioning the suspect, EY conducted a forensic analysis of the accused’s office phone records and the hard disk of his office laptop. It was found that not only was he diverting company orders to its competitors but had also set up his own private company to act as an agent for some of the clients. The multinational sacked the employee but did not lodge a criminal complaint with police.
Failure to press charges
Despite the increase of reporting fraud within company systems, companies are still resistant to criminal prosecutions, as they wish to avoid lengthy public legal procedures which may not secure a conviction.
Also, while there is growth in the whistleblowing sector, Paul notes it is not easy to enlist more clients for his service: ‘There is no peer pressure or any compulsion on the companies to earn brownie points by subscribing [to independent] whistleblower services.’ He said the basic problem is that most Indian business executives do not trust outsiders. ‘It is very difficult to change the traditional mindset that dictates, “my information should be closeted only with me”.’
Furthermore, Paul says that for many companies it is just not possible to deal with legitimate complaints because of inherent flaws in their own businesses. ‘In most family owned proprietor-driven companies there are no set procedures,’ he says, which makes it virtually impossible to pinpoint a violation.
Singh also admits that about 70% of Indian companies are still managing whistleblowing through an in-house system, which rarely attracts meaningful complaints. But he predicts that sooner or later the situation is bound to change: ‘I don’t think companies have options… external whistleblowing services will practically become a requirement in India.’
Raghavendra Verma, journalist based in New Delhi