This essay has been submitted by a law student. This is not an example of the work written by our professional essay writers.
Published: Fri, 02 Feb 2018
Introduction to the process of Whistleblowing
Most of the companies and public start concerning about whistle blowing after the case of World Com, and Enron case, which give a big impact to the public and accounting rule, where Sarbanes-Oxley Act was published after the case of World Com and Enron. As definition, whistle blowing is the disclosure of organizational member’s (former or current) disclosure of illegal, immoral or illegitimate practices under the control of their employers to persons or organization that may be able to take action. The main purpose of this assignment is to discuss about the importance of whistle blowing rules and regulations. There are several importances of whistle blowing rules and regulations being highlighted, which are: providing avenues for employees to raise concerns and define a way to handle unethical practices, reassure employees will be protected from punishment or unfair treatment for disclosing concerns in good faith, enable management to be informed at an early stage about acts of misconduct, and develop a culture of openness, accountability, and integrity. Besides that, in this assignment, we also would like to give a glance on the whistle blowing rules and regulations, and henceforth discuss the positive and negative implications of whistle blowing, latest issues, evidence and statistics of whistle blowing. Also, we will be highlighting the practical problems faced by whistleblowers and last but not least, providing conclusion as well as recommendations.
Scope of Study
Introduction of Whistleblowing
Whistle blowing is generally viewed as a process rather than an event (Near and Miceli, 2002), where whistleblower give the information of fraud, or immoral act of the company to the employer or other parties, like the government.
Whistleblower was a person or entity making a protected disclosure about improper or illegal activities. Whistleblower can be employees, applicants for employment, vendors, contactors, customers or general public. Whistle blowing can be internal or external to an organization.
Internal Whistle blowing
Internal whistle blowing is the situation where the agent might turn the irregular, immoral activities to the auditing or oversight department or straight to the board, or call as skipping hierarchies, where the information will reach to someone who is willing and able to process it responsibly.
However, the internal whistleblower usually more aware of unethical acts but may be more afraid of consequences of blowing the whistle, such as loss of job or being ostracized within the organization.
External Whistle blowing
External Whistle blowing was the extend of duty to inform of internal whistle blowing beyond the confines of the organization. It means that the agent blows the whistle of irregular and immoral practice to an external body, such as supervisory board, regulator, and ombudsman and so on.
However, whistleblower external to the organization may have less to fear from the consequences of whistle blowing but may not have as much at stake about the absence of unethical acts in a particular organization, or may not be aware of the extent of unethical acts.
Hence, the objective of this assignment was to:
Introduce about whistle blowing.
To give better understanding of what is whistle blowing by providing the definition that is easily understand by all, and how the term of whistle blowing is derived from.
To enhance understanding of people on the importance of whistle blowing rules and regulation.
The main purpose of this assignment is to inform the public on how importance of whistle blowing rules and regulation such as Sarbanes-Oxley Act, Public Interest Disclosure Act and others, in order to protect the whistleblower, enable management to be informed at an early stage about acts of misconduct, provide avenues for employees to raise concerns and define a way to handle unethical practices and develop a culture of openness, accountability, and integrity.
To alert the public on positive and negative implications of whistle blowing to the organization and society.
By understanding the pros and cons of whistle blowing, whistleblowers can try to get rid of the negative implications and take advantage of positive implications to benefit the organization and society.
To increase knowledge of public by providing the latest issues, evidences and statistics of whistle blowing
Discuss about the latest issues, evidences and statistics of whistle blowing to provide better understanding about whistle blowing.
To increase awareness of people about practical problems of whistle blowing in real world.
To give examples of practical problems such as losing jobs, faced retaliation and others that potentially faced by whistleblower in the real world.
To give some recommendations to encourage whistle blowing in workplace.
By providing some recommendations like establish a set of code of ethic, protecting the whistleblower and cooperate with independent professional association to handle the issues raised up by the whistleblower to encourage people, especially employees to blow the whistle when they discover wrongdoing in the workplace.
Definition of Whistle blowing
The term of ‘whistle blowing’ has many different facets. It can be an act of free speech, an anti-corruption tool, and an internal management dispute mechanism (David Banisar, 2006). Due to this, it has led to many of different definitions of whistle blowing.
First modern uses by US consumer activist, Ralph Nader in 1971, who described it as “An act of a man or women who, believing that the public interest overrides the interest of the organization he serves, blows the whistle that the organization is involved in corrupt, illegal, fraudulent or harmful activity.
However, for the recent definition of whistle blowing was “the reporting by employees or former employees of illegal, irregular, dangerous, or unethical practices by employers.”
With the many different form of whistle blowing, our group has concluded that the term of ‘whistle blowing’ shall define as: “the disclosure of organizational member’s (former or current) disclosure of illegal, immoral or illegitimate practices under the control of their employers to persons or organization that may be able to take action (Near and Miceli, 2002).
This definition was mean that the disclosure by whether is former or current employees of unethical or immoral practices by their employers or a person that have privileged access to the data or information of an organization to the persons outside of organization that have potential to rectify the wrongdoing, or an within organization.
The definition of whistle blowing shall consist of at least four elements:
The whistle blowing act,
The party to whom the complaint is made (i.e., the complaint receiver), and finally
The organization against which the complaint is made.
History of Whistle blowing
Whistle blowing’s term was first used in the year 1963 by publicity about Otto Otopeka, who had given classified documents about security risks in the new US administration to the chief counsel of the Senate Subcommittee on Internal Security.
The term of ‘whistle blowing’ is apparently derived from the practice of English Bobbies or police, who blowing their whistle when they noticed the commission of crime to alert the public of the danger and the others police to criminal acts.
However, most of the companies and public start concerning about whistle blowing after the case of World Com, and Enron case, which give a big impact to the public and accounting rule, where Sarbanes-Oxley Act was published after the case of World Com and Enron.
Whistle blowing rules and regulations
Increasing awareness of the problems faced by whistleblowers in terms of loss of jobs, victimization and other types of retaliation and their role, particularly in detecting and preventing fraud, has led to the development of whistleblower protection legislation. This section will concentrate on legal protection for whistleblowers in the US, UK and Germany.
US regulation on whistle blowing
Sarbanes Oxley Act of 2002
The SOX provides a civil action to protect employees of publicly traded companies who blow the whistle or likewise assist in a federal fraud investigation. The provision prohibits any officer, employee, contractor, or agent of a publicly traded company from taking certain retaliatory actions. These actions include discharging, demoting, suspending, threatening, harassing, or discriminating against an employee who assists in an investigation or lawfully provides information to a federal regulatory or law enforcement agency, a member or committee of Congress, or a person with supervisory authority over the employee who has the authority to investigate or terminate the misconduct.
State laws, False Claims Act and Corporate Sentencing Guidelines (CSG)
The primary focus of most statutes is to prohibit retaliation and provide remedies to those that suffer it. The laws vary on other issues, such as who the observer should notify, whether motive should be considered, what standard of wrongdoing should be required and what remedy should be provided to whistle blowers suffering from retaliation.
United Kingdom regulation on whistle blowing
The British Public Interest Disclosure Act of 1998 (PIDA)
Like most of the US approaches, the British Public Interest Disclosure Act of 1998 (PIDA) aims at avoiding organizational wrongdoing in general. Further, the PIDA clearly focuses on the avoidance of retaliations and does not encourage whistle blowers through direct financial rewards and protects individuals who make certain disclosures in good faith and in the public interest and allows these individuals to bring action in respect of victimization.
Germany regulation on whistle blowing
Germany legislation provides only a few explicit statutory rules to protect employees who notify very specific malpractice outside their company, e.g. in environmental law or labor law and in two federal state data protection laws.
Importance of Whistle blowing rules and regulations
Whistle blowing rules and regulations are playing an importance role to encourage potential whistleblowers to come forward with their suspicion by providing avenues for employees to raise concerns and define a way to handle unethical practices. Staff members are often the first to know of any unethical or downright illegal dealings that go on within a firm. However, they also tend to be the last to speak out, fearing the loss of their job, their friends or their future promotion. Therefore, by having whistle blowing rules and regulations, the whistleblowers can vote out any wrongdoing or misconduct by the employees without fear of losing their job, their friend or their future promotion under the protection of rules and regulations.
In addition, whistle blowing rules and regulations can reassure employees will be protected from punishment or unfair treatment for disclosing concerns in good faith. It is because most of the organization will punish the whistleblowers by fired, blacklisted, or charged violating laws or employment agreements to them even they are act in good faith. Therefore, the whistle blowing rules and regulations are importance to protect employees who blow the whistle on those involved in fraudulent and illegal acts against retaliation by public companies. Protection from retaliations aims at motivating employees to blow the whistle through the control of his expected “costs”. Protection from retaliation also could be utilized by employees to fend off legitimate criticism or disciplinary measures since they are principally able to claim the status of a whistleblower.
Besides that, whistle blowing rules and regulations also enable management to be informed at an early stage about acts of misconduct. By having whistle blowing rules and regulations, it encourages employees to inform illegal, immoral, or irregular practice by employers to the top of management within organization. Subsequently, giving the organization the chance to correct a perceived wrongdoing and settle the unethical practice internally before it might harm the organization or known by public.
Moreover, whistle blowing rules and regulations also help to develop a culture of openness, accountability, and integrity. With the whistle blowing rule and regulation, the organization could have a good culture in organization due to all employees should need to follow the rules and regulations, subsequently reducing the corruption and dangerous situation which could cause an organization to file bankruptcy. The protection of the rules and regulations are also able to enforce ethical conduct within the organization by encouraging the employee to report an unethical behavior to the suitable level of management, and therefore could significantly increase the efficiency of incomplete institutional arrangements and encourage culture of openness, accountability and integrity.
Positive and Negative Implications of Whistle blowing
Whistle blowing has two-edged sword effect as it brings positive and negative implications to organizational and society. A whistleblower may consider as our hero as it brings positive implications to organization and society, it may also consider as a traitor as it brings negative implications to organization and society.
The first positive implication is reduction of organizational waste and mismanagement. Whistle blowing can help the organization by informing the wrongdoing to the top management at early stage, so that management can take appropriate corrective action at once. By doing this can help to avoid the wrongdoing become more serious and uncontrollable in future that may affect the public interest which may incur lawsuit to organization. Therefore, whistle blowing can benefit the organization by lowering the cost of doing business through reducing unnecessary lawsuit that may face by organization because of wrongdoing or fraudulent.
Besides that, whistle blowing can also help to improve employees’ morale in an organization. Successful whistle blowing shows to employees that they have power to change unethical behavior in the organization and improve their work lives. Whistle blowing will also create positive climate in working environment that associated with enhanced employees’ satisfaction.
Furthermore, whistle blowing can maintain goodwill of an organization and avoidance of damage claims. It is because if the public learns of wrongdoing of an organization, they may boycott the organization’s product or service to penalize the wrongful behavior. Therefore, whistle blowing can help to avoid greater damage occurred such as immediate penalties by first warn the managers to give them opportunity to correct the wrongdoing before outsiders learn about it, as the public may eventually learn of the wrongdoing especially in the case of unsafely consumer product even without whistleblower.
Moreover, whistle blowing will increase safety and well being of societal members. For instance, in the case of Firestone, if the whistleblower willing to blow the whistle earlier about the inferior tires; it sure will not cause more than 41 deaths and hundreds of injuries. Also, in the case of Enron, if the auditor willing to blow the whistle earlier, the investors will not loss all their money and the employees will also not loss all their pension funds. Therefore, whistleblower plays an important role to ensure the safety and well being of societal members.
Other than that, whistle blowing also help to promote about code of ethics to society. Whistle blower may serve as role model or hero of the society that encourage ethical behavior adapted by everyone in society. Subsequently, our society will become integrity and peaceful, if everyone is applying code of ethics in their daily life.
On the other hands, whistle blowing may bring negative impact to organization as it challenge to authority structure. Many managers believe that membership in a bureaucracy requires obedience and loyalty. Whistle blowing maybe considered threaten the authority structure and weaken the chain of command. As some supervisors may view whistleblowers as having ‘gone behind their backs’ or ‘over their hands’, which undermines legitimate control in organization.
Whistleblowers may also face unpredictability action from organization. For instance, whistleblower may inform the wrongdoing to the top management, but organization maybe unresponsive. However, the worst scenario is when whistleblower being sued back by organization because of breach of confidentiality. Some whistleblower even faced retaliations from organization such as being fired or blacklisted by the employer.
The last negative implication of whistle blowing to society is court logjams. The society may experience costs of whistle blowing, for example, lawsuits involving less substantial charges can prevent courts from dealing with more critical matters. Regulatory agencies also have to impose more rules and regulations to protect the whistleblower, which may incur high cost to society.
Although there are positive and negative implications that whistle blowing bring to organization and society, positive implications still outweigh negative implications. Therefore, we can conclude that whistle blowing should be encouraged since it brings more benefit than cost to organization and society at large.
Reduction of organizational waste and mismanagement.
Improved employees’ morale.
Maintenance of goodwill and avoidance of damage claims.
Challenge to authority structure.
Unpredictability of organization member’s action.
Increased safety and well being of societal members.
Promote of code of ethics.
Table 4.0 Positive and negative implications of whistle blowing
Issues, evidences and statistics of whistle blowing
What is the No. 1 deterrent to corporate fraud? Most studies consistently show that business and workplace fraud were eventually uncovered were first disclosed by employees or other key informants blowing the whistles.
Under the Courtesy of Association of Certified Fraud Examiner’s Report (ACFE) to US In 2008, 46.2% of fraud incidents examined, were detected by tips. Detection by ‘accident’ at 25.4% was decreasing to 20% in 2008. In 2008, detection by ‘internal controls’ is at 23.3%. Together, tips and accidental discovery account for more than 60% of all fraud detection, which speaks to the unpredictable nature of combating thievery that is often elaborated and technologically sophisticated.
The act as misusing one’s position at an organisation for personal economic gain was deemed as an occupational fraud. The “asset misappropriation” such as the falsifying of invoices, payroll fraud and revenue-skimming, accounted for the 90% of occupational frauds resulting in the median losses of $150,000. Yet it is still less costly than “Corruption” which is resulted in the median losses of $538,000, according to ACFE report. In fact, some of the biggest scandals happened in early of 2000 were directed to Enron Corp and WorldCom Inc and these all made a change in reporting mechanism necessary thus enacted regulated act such as Sarbanes-Oxley Act in 2002.
At the mean time, this has made the act of whistle-blowing being enormously strengthened; subsequently tips are recognised as No.1 fraud detection method and the tipsters played a key role in uncovering those multi-billion-dollars scandals.
Recently, the current situation triggers some 81 percent of public and private companies to be initiative and have instituted whistleblower hotlines, but a prominent study, survey from Deloitte Forensic Centre showed that just about one third of companies deemed theirs “effective”. This has shown that the whistleblowers are not highly protected through hotlines. Furthermore, according to the Vinten, 1995; Qusqas and Kleiner, 2001, 68% of whistleblowers will have difficulty in finding employment. While they are granted legal protections under Sarbanes-Oxley, experts say that very few actually get the relief they are looking for, and many end up being terminated or blackballed in their industry.
The main reason that would influence a person in the organization to take no action when they discovered any misconduct or fraudulent act is because they believed reporting would not lead to actions. Besides that, there is also an expectation gap regarding auditor’s role. Some players in the industries assume that whistle blowing is the auditor’s role, which actually is not the responsibility of an external auditor. An external auditor only assists in this case, as the role of an external auditor is to give assurance that financial statement is in true and fair view and absolutely is not to purposely investigate and report about fraud (except for forensic auditor).
Another reason of not blowing the whistle is because the people are afraid of losing their job. Based on a report done by audit commission in year 1994, they noted that the majority of six million fraud detected by them over the past three years period actually could have been detected by workers and internal audit staff. However, when these staff and internal audit staff were interviewed, they said that they were afraid of losing their jobs if they reported abuses or criticism to their managers.
Other than that, people who are more dependent on the organization tend to think carefully before they blow the whistle. This is unlike highly skilled people where they believe they are credible, powerful and willing to be associated with their statements. They are not afraid of losing their job because they are highly skilled and they do not depend wholly on the organization to survive. Besides that, once an employee has blown the whistle, increasing pressure will be placed on them to refrain from further disclosure and rescind their statements.
Furthermore, if the organization viewed the act of whistle blowing negatively, whistleblower will be facing retaliatory act such as their job duties are taken away, the management may question their mental health, competency and honesty and the worse is the management might continuously seeking ways to entrap him or her by giving impossible tasks which may force them to resign.
Another reason of not blowing the whistle when the staff in an organization discovered any fraudulent act is due to lack of accessible whistle blowing procedures. Whenever a staff discovered any misconduct or fraud happen, they do not know what is the proper channel to raise up this issue. Therefore, due to this constraint they would rather keep silence.
Conclusion and Recommendations
After going through the practical problems that faced by whistleblower, we would like to give some recommendations on how to improve and encourage whistle blowing within an organization. First and foremost, the companies should establish a set of code of ethic, clearly defined and straight forward reporting procedure. This is important to enhance internal communications and encourage internal disclosure which will enable the management to take immediate corrective actions before the problems grow larger or spread to the outside parties.
Another way to encourage whistle blowing is by protecting the whistleblower. Whistleblower need clear sign of support from the organization. Therefore, companies should give strong support to them by continuously monitor the whistleblower’s welfare, encourage the whistleblower to report any retaliation against him or her as well as ensure their job security. By doing so, the whistleblower will feel they are being protected and supported.
Our next recommendation is to encourage companies cooperate with independent professional association to handle the issues raised up by the whistleblower. Whenever there is a report of fraudulent act, these two committees will meet and handle this issue together. This is also one of the effective ways to ensure the problems raised up by the whistleblower will be taken seriously and further investigated. This is also to prevent company from covering up the issue and take unethical actions against the whistleblower.
In conclusion, whistle blowing is about reporting or publicizing wrongdoing. There may be a risk of retaliation, which could lead to loss of employment, relationship and mental, but the consequences of not reporting can be very grave. Therefore, whistle blowing rules and regulations should be enforced in order to protect the welfare of whistleblower, as well as encouraging whistle blowing culture in the workplace. This is to ensure that an organizational is always free from any fraudulent and illegal act that may harm the organization and jeopardize the society.
Cite This Essay
To export a reference to this article please select a referencing style below: