(By Joe Koletar) According to a Wall Street Journal article (“Treatment of Tipsters Is Focus of SEC, 2/26/15, C-1), the SEC has in recent months sent probing letters to a number of companies, asking for years of internal records pertaining to possible “backlash” against inside tipsters.
This is significant for at least two reasons:
• For over a decade the Association of Certified Fraud Examiners (ACFE) has reported tips are, by far, the single most effective means of discovering fraud.
• But tipsters seeking a financial reward for “blowing the whistle” often face a long and usually painful experience. Studies have shown social isolation, management retaliation if identified, alcohol and drug abuse, divorce, and even suicide.
The term “whistler blower” is now somewhat common in the post- Enron era, but the concept is actually quite old. The False Claims Act (FCA) was passed by Congress following the Civil War after Union troops complained of short shipments of shoddy goods. The hope then was to reduce the abuse by getting vendor employees to report it.
More recent legislation put protection of whistle blowers under the aegis of the Occupational Safety and Health Administration (OSHA,) an agency founded to deal with industrial safety. As one might expect, OSHA’s performance in protecting whistle blowers has been subject to criticism.
The article advises the SEC suspects that some companies have strict restrictions as to what employees may report, to whom they may report it, and what financial benefit, if any, they may receive. This would be akin to removing the teeth from the tiger.
Of note, the article also cites the Dodd-Frank financial reform bill, which created the SEC’s current whistle blower program. The bill was passed in 2010, well over one hundred years after the FCA. Such, apparently, is progress in such matters.
The situation, however, is not all bleak. The SEC fielded 3,620 complaints of possible financial misdeeds in the 2014 Fiscal Year, a 21% increase from 2012. States are also beginning to follow the Federal lead, with legislation of their own. Both are positive trends in the direction of spotlighting those misdeeds.
Whistle blower groups such as the Governmental Accountability Project express concerns that companies still may be using increasingly-inventive measures to constrain those who might talk. Some members of Congress joined in on the issue, at least for the time being. Some companies have fought back, arguing they have modified procedures to facilitate employee reporting.
The situation seems to be getting better, but the jury is still out in the long term.
In the meantime, what is the average citizen to do? A suggestion may be in order:
Look in the mirror and ask yourself a simple question –“Why have you (we) tolerated this so long? Isn’t one hundred years enough?”
Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of A.B.C.s of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D. These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud. Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.