The Fraud Examiner

Whistleblower Policies: Not Just for Large Organizations Anymore

May 2014

By Jacob Parks, J.D., CFE

When a seminar speaker gets to a point in a presentation about the Sarbanes-Oxley Act (SOX), it historically has meant one thing for attendees who do not work directly with public companies: good time for a coffee break. However, those days seem to be coming to an end — at least when whistleblower issues are at hand.

There are several forces pushing on organizations of all shapes and sizes to implement whistleblower programs that are designed to both comply with laws that protect those who come forward about violations, as well as help the organization gather tips to root out fraud. Perhaps the most significant factor in recent events was the U.S. Supreme Court’s decision on March 4, 2014, inLawson v. FMR LLC , which expanded the scope of SOX whistleblower protections to more than just employees of public companies and their affiliated entities.

SOX was the federal government’s response to the financial reporting fraud crisis in the early 2000s that resulted in the fall of corporate giants Enron and WorldCom, as well as one of the “Big Five” accounting firms, Arthur Andersen (now they call them the “Big Four”). Thousands of people lost their jobs or saw their investments vaporized. Congress investigated what allowed these massive fraud schemes to happen, and one of the conclusions was that the high risk of retaliation that whistleblowers face from employers has a substantial chilling effect on fraud reporting.

To mitigate this risk, 18 U.S.C. § 1514A prohibits agents of public companies from retaliating against an employee who lawfully blows the whistle on federal securities violations, wire fraud, mail fraud, or banking fraud. If any person retaliates in violation of Section 1514A, then the employee may file a suit to recover damages necessary to make the employee whole, including reinstatement of position and compensatory damages.

Employment lawsuits can be both expensive and embarrassing for the employer, so many public companies sought to implement programs to protect whistleblowers, educate employees and avoid actions that could be construed as retaliation.

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