Protecting the Sentinels Blowing the Whistle: A Historical Perspective

Whistle-blowers (or sentinels as the ACFE calls them) raise signals that something is amiss. In this issue, Karol Romanowicz, a second-year graduate student in the Master of Public Administration-Inspector General Program at John Jay College of Criminal Justice in New York City, provides a simple historical primer on the whistle-blower phenomenon and implications for fraud examiners. This column is adapted from a paper Romanowicz wrote for a college course.  

Identifying internal fraudulent, wasteful, or corrupt behavior, as we know, can be extremely difficult. Elaborate illicit practices such as those committed by executives of Enron, WorldCom, Tyco, or other mega corporations can take years to identify and investigate. A fraud examiner’s best source of information is someone on the inside – a whistle-blower.

“Whistle-blower” refers to British bobbies, the first professional police force, who blew their whistles when they witnessed crimes. One of the most famous whistle-blowers is Jeffrey Wigand, former vice president for research and development for Brown and Williamson Tobacco Corporation. In 1995, on the CBS television program “60 Minutes,” Wigand disclosed that the tobacco industry knew of the health hazards that its products were causing. According to Wigand’s Web site, his insider knowledge assisted the Federal Drug Administration with its investigation into the role and effects of nicotine in tobacco products.

A LENGTHY TRADITION
The first U.S. law addressing whistle-blowing, the Lloyd-La Folletta Act of 1912, was a response to executive orders by the Theodore Roosevelt and William Taft administrations, which prohibited federal employees from communicating directly with Congress unless cleared with their superiors. (See whistle-blower history content on the Government Accountability Project Web site.)

However, potential whistle-blowers within the private sector didn’t have any protection until 1972 with the passing of Water Pollution Act. This was followed by a plethora of others such as the Safe Drinking Water Act, Toxic Substances Act, and Energy Reorganization Act, all of which incorporate protection for individuals that were retaliated against or fired for addressing issues of public safety or company wrongdoings.

Unfortunately, with such differing legislation, whistle-blowers have from 10 to 300 days to file claims depending on the states in which they live.

FEDERAL PROTECTIONS
The Whistleblower Protection Act of 1989 protects federal whistle-blowers, or anyone working with the government, for reporting wrongdoings within their agencies. A federal agency is in violation of the act if it fails to take a complaint from an employee or an applicant. However, the complaint must show a violation of a law, rule, or regulation. Also, the agency must respond to any reports of gross mismanagement, gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety.

The act also created the Office of Special Counsel (OSC), which is tasked with investigating complaints from officials that said they were punished after reporting to Congress about fraud, waste, or abuse in their agencies. The OSC has jurisdiction over allegations of whistle-blower retaliation made by employees, say, for example, of the U.S. Securities and Exchange Commission.

CORPORATE FRAUD WHISTLE-BLOWERS
After the fallout of the Enron, Tyco, and WorldCom debacles, among others, Congress quickly passed the Sarbanes-Oxley Act of 2002 (SOX) also known as the Public Company Accounting Reform and Investor Protection Act of 2002. Section 1107 of the act addresses the protection of corporate whistle-blowers:

Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense, shall be fined under this title or imprisoned not more than 10 years, or both.  

FRANK SERPICO
In 1967, Frank Serpico, a New York City police officer, filed his first formal complaint about the systematic and widespread corruption within the New York Police Department (NYPD). His superiors disregarded his reports, so Serpico told his story to The New York Times, which exposed the department’s corrupt practices, according to Serpico on his Web site, www.frankserpico.com. New York City Mayor John Lindsay appointed Judge Whittman Knapp as the head of a commission for investigating corruption within the NYPD.

During an undercover police operation in 1971, Serpico was shot in the face by a drug dealer. Some believe that officers under investigation for corruption had arranged the shooting. Later that year after he recovered, Serpico testified in front of the Knapp Commission (or the Commission to Investigate Alleged Police Corruption) about his experience with corrupt behavior within the department. (Serpico suffered permanent impairments from the shooting including deafness in one ear.)

WHISTLE-BLOWER RECOMMENDATIONS
Serpico’s case is extreme, but his experience highlights the dangers that whistle-blowers face. The potential whistle-blower should not only feel protected but also encouraged to report corruption or other violations through anonymous employee hotlines with toll-free numbers set up through independent third-party companies that monitor and report calls.

Organizations should communicate values of integrity to employees by providing training or issuing company-wide newsletters, according to the article, “When Courage is Encouraged on the Job,” by G. Jeffrey MacDonald in the January 26 issue of The Christian Science Monitor.

Many employees don’t report unethical behaviors simply because they believe their organizations won’t respond. Therefore, companies must establish ethical cultures from CEOs to the front-line employees. Support from management is a better employee motivator than media reports of an explosive fraud expose that endangers whistle-blowers and companies’ bottom lines.

IMPLICATIONS OF IMPLEMENTATION
An organization should ask itself several questions when it’s writing whistle-blower guidelines:

• Is the whistle-blower retaliating against a supervisor with false accusations?
• The whistle-blower might be reporting genuine problems, but what do we do if that person isn’t a good employee? Does the whistle-blower then get a free pass because he or she exposed an issue?
• What do we do if the whistle-blower has participated in the same actions he or she is now exposing, perhaps as a means of escaping the consequences of participation in the fraud?
• What should we do when we realize that encouraging employees to bypass the proper channels is undermining management decision making?
• What if there’s reason to suspect a whistle-blower is targeting a specific employee because of his or her race, gender, or ethnicity?

(These guidelines are from “Encouraging Internal Whistleblowing in Organizations,” by Lilanthi Ravishankar on the Web site of the Markula Center for Applied Ethics at Santa Clara University.) 

Though would-be whistle-blowers find it difficult to report problems, it’s especially difficult for those employed at high-security organizations. Bunnatine Greenhouse, the former top civilian procurement officer at the U.S. Army Corps of Engineers, was demoted to a worthless job “in a cubicle in a dark corner totally out of the mainstream of the Corps,” she told Fraud Magazine for a November/December 2008 article on whistle-blowers. The reason? She was the only federal official who opposed the no-bid Halliburton contracts that cost the taxpayers billions of dollars in waste and fraud during the reconstruction of Iraq. (Greenhouse was the recipient of the ACFE’s 2006 Cliff Robertson Sentinel Award “For Choosing Truth Over Self,” the inscription on the award.)

THE FUTURE OF WHISTLE-BLOWING
In 2007, whistle-blower laws encountered a significant setback. In the case of Garcetti v. Ceballos, the U.S. Supreme Court ruled that government employees weren’t protected under the First Amendment in cases of retaliation firings.

As a response to this ruling, the House of Representatives passed the Whistleblower Protection Act of 2007 (H.R.985). However, President George W. Bush, concerned with national security, promised to veto the bill if it was to become law. He didn’t have to be concerned because the bill died in 2007.

On July 29, the Senate Committee on Homeland Security and Governmental Affairs marked up a new bill, the Whistleblower Protection Enhancement Act of 2009 (S. 372), and sent it to the Senate floor. Another version of the bill, H.R.1507, has been introduced into the House of Representatives.

Meanwhile, we must remain vigilant and protect whistle-blowers so they can’t be punished for doing what’s right.

Colin May, M.S., CFE, is a forensic financial investigator with a government agency (the views in Starting Out are his own) in Baltimore, Md. 

Mark F. Zimbelman, Ph.D., CPA, Educator Associate Member, is an associate professor of accounting and Selvoy J. Boyer Fellow at Brigham Young University in Provo, Utah. 

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