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Study: Sarbox Curbs Fraud Whistleblowing

Despite the 2002 law's whistleblower protection provision, employees have been less likely to come forward with fraud concerns.

Sarah Johnson, CFO.com | US
February 13, 2007

Whistleblowing is Risk Communication

As corporate counsels we have been analysing for years, why whistleblower protection legislation doesn’t protect. Out of the many reasons that we found, two are exemplified in Sarbox: 1.) It is really remarkable but unfortunately typical for most whistleblowing legislation and rules to set up an obligation (the duty to report) and in the same instance to promise protection for the obviously totally unexpected case of conformance. The underlying message couldn’t convey a more extreme double-bind: here we order you to do something, but if you comply, try to find someone who is going to enforce your protection from all the harassment you can expect. Who would be insensitive enough to understand anything else but: shut up and be quiet (the ages old "audi, vide, tace, si tu vis vivere pace" or three apes). Thus Sarbox is really part of a system that makes whistleblowing less likely. 2.) Since it has been clarified by the court that Sarbox does not cover complaints that only tangentially relate to financial concerns, higher burdens yet have been placed on employees to determine with what sort of subject matter they can come forth. This again reinforces the stance rather to stay quiet. Sarbox is probably still one of the more successful whistleblowing legislations, because it raises to some extent the motivation of managers to listen to their employees - because some sort of a whistleblowing systems has to be set up. However, curiously enough, the predominant new incentive lies in the carrot and stick system of Chapter 8 Federal Sentencing Guidelines. Why set up a risk management system (ERM...) as a formality, why so with a whistleblowing system ? From our experience, we argue that the main fault with whistleblowing under Sarbox is that it is still addressed with a complaint system. Whistleblowing is nothing near complaining. Instead, we believe, there is incredible value in the risk information and the opportunities for improvement that surface if this information is handled internally in a communicative and constructive manner. Make it part of risk management and quality management. It will bring you a measurable competitive advantage. But you will need competitive internal communication structures and a management that is motivated and able to listen.

Posted by Bjrn Liebenau | February 14, 2007 08:30 am

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