Reporting Misconduct Internally


Richard H. Girgenti, CFE; Meghan V. Meehan, CAMS
Contributing Writers, Fraud Magazine

With the passage of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act and subsequent enabling rules, corporations face greater challenges in maintaining effective compliance programs. A key provision of the law allows whistleblowers to reap possible multimillion-dollar rewards for providing the Securities and Exchange Commission (SEC) with original information on alleged corporate wrongdoing.

After much public debate, the new law and related rules don't require whistleblowers to report knowledge of wrongdoing to their companies as a condition of eligibility for rewards. What's more, research shows that, despite the best efforts of many entities, most corporate environments usually fall short in alerting their employees of the importance of reporting misconduct internally and making them comfortable when doing so. With the U.S. federal government opening a reporting path straight to the SEC and adding a monetary incentive for employees to take that approach, many companies have strengthened their compliance programs and ensured that their cultures encourage employees to raise their hands high when they know something is amiss.


The SEC board members voted three to two on Aug. 12, 2011 to make the rule effective. The government can now consider a whistleblower for a reward if he or she voluntarily provides the SEC with original information, which leads to successful enforcement of a federal court or administrative action that includes monetary sanctions of more than $1 million. That reward is 10 percent to 30 percent of the total monetary sanctions.

The SEC considers the nature and severity of the misconduct to determine if the whistleblower may collect an award. With a few exceptions, the rule excludes the reward eligibility of senior managers with legal, compliance, audit, supervisory or governance responsibilities who may have learned of a reportable issue during the course of their duties. A whistleblower who may have engaged in wrongdoing may still be eligible for an award.

The SEC noted in the Annual Report on the Dodd-Frank Whistleblower Program that it had received 334 whistleblower tips on a variety of financial issues between Aug. 12 and Sept. 30, 2011, the most recent data available.


Faced with the prospects of any fraud or misconduct issue becoming a federal case —possibly even before the organization itself learns of the problem — most companies have launched a reassessment of their internal fraud prevention and compliance programs with a particular emphasis on the adequacy of internal reporting mechanisms and incentives. 

Read the rest of this article and discover the 10 things companies are doing to ensure they have an efficient internal reporting system on