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Your Guide to Whistleblowing

Navigate the career minefield that goes hand-in-hand with pointing the finger. By Bridget McCrea | Winter 2016/17

Ethics

In September of last year, a financial executive collected a near-record $22M whistleblower award from the Securities and Exchange Commission (SEC). This award recognizes professionals who report improprieties on behalf of their employers or clients. In this particular instance, a Monsanto employee “blew the whistle” by providing information about the firm’s insufficient internal accounting controls.

According to the Maryland Association of CPAs, the company was booking full revenue from the sale of one of its flagship products without reducing that revenue for the expected impact of rebates offered on those sales. The SEC ruled that Monsanto’s own CPAs knew or should have known that the sales force was using the rebate program to incentivize sales in 2009, but improperly delayed the recording of those costs until the following year.

“Financial reporting and disclosure cases continue to be a high priority for the Commission, and these charges show that corporations must be truthful in their earnings releases to investors and have sufficient internal accounting controls in place to prevent misleading statements,” writes MACPA’s Edith Orenstein in Focus on Financial Reporting Fraud. Jane Norberg of the SEC said, “Without this whistleblower’s courage, information and assistance, it would have been extremely difficult for law enforcement to discover this securities fraud on its own.”

With that September ruling and subsequent payout, the SEC brought the total amount of whistleblower payments to over $100M.  

What is whistleblowing?

To professionals who may not have experience with the concept of whistleblowing, the Government Accountability Project (GAP) defines it as: “An employee who discloses information that she/he reasonably believes is evidence of illegality, gross waste or fraud, mismanagement, abuse of power, general wrongdoing, or a substantial and specific danger to public health and safety. When information is classified or otherwise restricted by Congress or Executive Order, disclosures only are protected as whistleblowing if made through designated, secure channels.”

According to Accounting Today, The Tax Relief and Health Care Act of 2006 required the IRS to set up a Whistleblower Office by December 2006, and then pay rewards to tax whistleblowers. Prior to this legislation—now Section 7623 of the Tax Code—the IRS had the option to pay rewards to individuals it previously referred to as “informants.”

Ask the right questions

A somewhat confusing process for professionals to navigate, whistleblowing is fundamentally very clear cut, says George Heyman, an instructor with AuditSense and former chair of the Illinois CPA Society’s Ethics Committee.

“When looking for a job, young professionals in particular should do their homework on the company and try to determine what the tone of the company is from the top down about being ethical,” says Heyman. “That way he or she can minimize the risk associated with the specific situation. As a young professional your goal should be to work for a company that has a solid, ethical approach from the top down, and that will never put you in the position of having to dig your heels in and say, ‘Hey, I cannot do this.’”

Of course, even the best-laid career plans can backfire when things are out of your control and/or area of oversight. An employer or client that uses language like, “Hey, we want to stay in business so this is what we need to do,” should send up an immediate red flag. Heyman suggests framing questions such as, “Is this something that we’re allowed to do and that we really should be doing?”

Five tips to guide you

For pros looking for good advice on how to identify potential problem areas and manage the responsibility associated with whistleblowing, consider these five guidelines:

1. Use integrity as your baseline:
Defined as the quality of being honest and having strong moral principles and moral uprightness, integrity plays a key role in all stages of the whistleblowing process—from the initial identification of a problem, through to the reporting of that problem, and then follow-up with the appropriate governing body. “To have integrity means that you're working for a company that can accommodate the inadvertent error and honest difference of opinion,” says Heyman, “but that will not accommodate deceit or subordination of principle.”

2.    Always be skeptical:
Don’t take anything at face value, says Heyman, and don’t be afraid to ask the tough questions. “Encourage discussions with differing opinions, question the status quo, and notice surroundings and behaviors,” he advises, adding that you should be asking questions like, “Can we really accept this or that as the truth?” and “Are we sure we have everything?” With the latter question, he says the goal is to obtain all the data you need to be able to make educated, confident decisions regarding gray areas around your client’s or employer’s accounting practices. “This is where a lot of people get into trouble,” he says, “and where they wind up saying, ‘Oh, if only I had known.’”

3.    Be ready to provide specific examples:

As a CPA, the public relies on you to act with competence, objectivity and integrity. It also expects you to act with the highest possible level of professionalism and ethical judgment, which means being able to make tough decisions when called upon to do so. When submitting a tip to the SEC, be ready to provide specific, timely and credible information.

“A general claim that you think your next-door neighbor is committing securities fraud does not give our investigators much to go on—even if you are right,” the SEC states. “Our staff will be much better able to pursue an investigation of your tip if they have specific examples, details, or transactions to examine. So, the more information and specifics that you can provide to us to follow up on, the better.”

4.    Keep it on the down-low:
Avoid actions that could reveal your intentions or status as a whistleblower such as conspicuously downloading documents or telling co-workers, even trusted ones, about your suspicions, advises Jordan Thomas in 5 Tips for Potential Corporate Whistleblowers.

Be particularly careful with electronic communications—don’t Google “whistleblower award” or “whistleblower attorney” from your work computer or mobile device, Thomas advises. “Also, you don’t have to be Sherlock Holmes, interrogating suspected wrongdoers and taking photos of everything in the office. Let the SEC do its job once it gets the tip from you.”

5.    If you aren’t sure what to do, contact the Illinois CPA Society:
The ICPAS Ethics Committee can help you determine whether you have a legitimate issue on your hands and/or whether further action is warranted. Plus, any contact you have with the committee is completely confidential. “Here at the Ethics Committee, we can’t repeat anything that we hear,” says Heyman, “but we can give good advice on whether the person or organization in question is actually doing something wrong.”