Reporting Misconduct Internally

SPECIAL TO THE WEB

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 RULE

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.

WHAT CAN COMPANIES DO?

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 Fraud-Magazine.com.

Global Corruption: Not a Victimless Crime

GUEST BLOGGER

Sheila Keefe, CFE, CPA
Principal, BDR Advisors, LLC
Lake Geneva, WI

Bribes and grease payments to foreign officials used to be considered standard operating procedure for many global enterprises. Much of that came to an end during the tenure of Mark Mendolsohn, former deputy chief of the fraud section at the U.S. Department of Justice (DOJ). Mendolsohn’s zealous prosecution of corporate corruption, under the Foreign Corrupt Practices Act (FCPA), prompted many organizations to ramp up compliance budgets in order to be spared the multi-million dollar fines Mendolsohn managed to get. 

Mendolsohn recently left the DOJ to focus on litigation in the private sector. In an interview last month with the Wall Street Journal (subscription only), Mendolsohn discussed how the DOJ’s campaign against foreign corruption paved the way for broader, social, political and economic reforms in foreign countries doing business with the United States.

To wit, Mendolsohn stated, “People are more appreciating the connections to corruption and other issues of grave concern to people, such as democracy building and our efforts in Afghanistan and Iraq. It’s gone from being a taboo topic to a widely discussed topic.”

Looking forward, Mendolsohn suggested that the Dodd-Frank Act could act as a major accelerant to FCPA enforcement as whistleblowers look to profit from reporting violations. Additionally, Mendolsohn believes that increased cooperation between U.S. and foreign authorities, as well as additional funding to the DOJ and SEC, could create an environment of continued ardent FCPA prosecution. Mendolsohn went on to predict that “the oil-and-gas industry and pharmaceutical industry will continue to face challenges because of the nature of their businesses.” 

The connection Mendolsohn makes between foreign corruption and democratic reform demonstrates the manner in which FCPA enforcement extends beyond the economic arena. Per Mendolsohn, “There is a growing recognition of what people commonly call the corrosive effects of corruption on development and democracy and democratic institutions. There is, at some level, a growing intolerance for corruption.”

Some may view bribes as a victimless crime, especially when there’s an attitude that “everybody’s doing it” and bribes are “just a cost of doing business” in certain foreign countries. The comments provided by Mendolsohn in the Wall Street Journal suggest a causal relationship between corruption enforcement and democratic reform, illustrating that foreign corruption is most definitely not a victimless crime.

FCPA compliance is just one of the compliance topics discussed in the ACFE’s courses on Fraud-Related Compliance and Fraud Risk Management.

Find more of Sheila's commentary on her blog, Business Done Right Press.