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Deloitte Whistleblower service - the pitfalls and keys to success

Hugh Mosleywhis•tle-blow•er n. a person who informs on a person or organization engaged in an illicit activity.1

Encouraging honest employees to raise the flag when something is awry is one of the most effective ways to uncover fraud, theft, workplace safety or sexual harassment incidents, before they get out of hand. This is why the ASX Corporate Governance Principles2 suggest a company’s Code of Conduct include provisions to encourage the reporting of unlawful or unethical behaviour and to actively promote ethical behaviour. The Code of Conduct should include reference to how the company protects those such as whistleblowers who report violations in good faith and processes for dealing with such reports.

Globally, the use of a whistleblowing system is considered best practice.

However, establishing a whistleblowing system is more than simply setting up an internal telephone number for employees to call. Whistleblowing systems of this nature are bound to fail.

Reasons why whistleblowing systems fail

In our experience, there are several reasons whistleblowing systems fail, including:

  1. Lack of anonymity – one of the biggest impediments for whistleblowers to report misconduct is the fear of retribution.
  2. Poor Culture – an organisation’s culture is set by the “tone at the top”. If management sets a poor example in relation to misconduct, then employees are less likely to speak out.
  3. Lack of Policies – if policies in relation to acceptable behaviour and ethics, and how to respond to breaches, do not exist or are not abundantly clear, then employees may be uncertain about what constitutes misconduct or how to raise concerns.
  4. Lack of awareness – if the existence of the whistleblowing system is not communicated effectively and continually reinforced then employees are less likely to use it or know how to access it.

Keys to a successful whistleblowing system

For a whistleblowing system to work effectively it should, at a minimum, have these elements:

  1. Anonymity – employees must be assured that they can report suspected incidents of misconduct without fear of retribution. An effective system should allow the whistleblower to protect their identity if they so wish.
  2. Independence – employees feel more comfortable about reporting misconduct to an independent party who is either unrelated to the organisation, or independent of management within the organisation.
  3. Accessibility – ensure all employees, blue collar, white collar, office bound or remote, can make a report via a number of channels, i.e. telephone, email, online or mail.
  4. Credibility – to demonstrate the benefits of the system, incidents reported through to the whistleblowing system must be followed up and action taken where necessary. Importantly, whistleblowers should receive feedback as to the outcome of their report.

Cost vs. Benefit

The cost of implementing an independent whistleblowing system is insignificant compared to the potential cost of reputation damage or corporate collapse. Many examples of corporate misconduct leading to large losses, corporate collapses or reputational damage may have been avoided if individuals had raised the flag sooner.

It must be recognised that on its own, a whistleblowing system will not eliminate fraud or misconduct. An organisation must take a holistic approach to fraud prevention, from the organisation’s culture, ethics and attitude to misconduct; to policies and guidelines defining misconduct; and finally corrective or disciplinary action taken when necessary.

The illustration below depicts a word map3, showing the types and frequency of allegations made through the Deloitte whistleblower hotline service.

. Deloitte Whistleblower service.

 


1. Oxforduniversity.com 2013 http://oxforddictionaries.com/definition/english/whistle-blower

2. Corporate Governance Principles and Recommendations with 2010 Amendments 2nd Edition, ASX Corporate Governance Council

3. Wordmaps show the relationship between words used by callers and the relative frequency with which those words are used.

Author

Hugh Mosley
Partner, Deloitte Forensic
Tel: +61 3 9671 6981

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