Whistleblower protections have been extended to employees of many private companies.
Recently, the U.S. Supreme Court ruled in Lawson v. FMR LLC that Sarbanes-Oxley Act (SOX) Section 806, which protects employees from retaliation, also applies to private companies, contractors and subcontractors that provide services to public companies. “Retaliation” is broadly defined to include the discharge, demotion, suspension, threatening, harassment or any discrimination against a whistleblower.
The Lawson decision has made SOX Section 806 an important consideration for private companies, which should consider:
- Are we aware of anti-retaliation risks?
- Do we have effective anti-retaliation policies and procedures?
- Do these policies and procedures address how we deal with whistleblower complaints, which are likely to increase?
- If so, do we have a compliance program to ensure these policies and procedures are being followed and are effective?
Smart Business spoke with Bill Brown, partner-in-charge, and Carolyn Bremer, senior manager, in Forensics and Litigation Services at Weaver, about how to react in light of this decision.
What is the impact of whistleblowers?
The government has long recognized the importance of leveraging witness information in enforcement. Traditional investigative tactics are reactionary and slow paced. In contrast, firsthand knowledge of illegal activity is direct and relevant, reducing the need for fishing expeditions.
It is well established that anonymous tips — the firsthand knowledge brought forward by whistleblowers — is by far the most effective source of information about suspected fraud.
How does the government promote assistance from whistleblowers?
Although financial incentives can be substantial (often a percentage of funds recovered), many whistleblowers are motivated by a desire to correct a perceived wrong. Would-be whistleblowers, however, may hesitate for fear of retaliation. The government recognizes the chilling effect retaliation has on whistleblowers, and SOX Section 806 is its response.
What kind of anti-retaliation policies and procedures should companies employ?
Whistleblower protections must be deeply rooted in your compliance and ethics policy. Anti-retaliation is an ethical issue that must be addressed from the top. To be effective, these policies and procedures must address:
- Encouraging whistleblowers to come forward with relevant information.
- Providing a reporting mechanism for handling increased whistleblower reports.
- Establishing investigative procedures to resolve complaints.
- Promoting acceptance of anti-retaliation policies throughout the organization.
First, retaliatory risks must be assessed in order to design procedures that fit your organization. During this assessment, top leaders must make it clear that they fully support the policies, and the procedures must reflect management’s ethical tone.
Once policies and procedures have been adopted, continuously monitor compliance and update procedures. An effective internal audit group usually can accomplish this.
Finally, you must investigate whistleblower reports. Some will require an extensive third-party investigation culminating in appropriate remedial actions, which may include litigation or voluntary disclosure.
What’s the key to engaging the right resources to deal with fraud?
Few organizations have internal resources with the investigative skills required. Consult a qualified firm with investigative and risk advisory professionals who can help you prepare for these new requirements.
If your organization doesn’t yet have a well-established internal audit department, you also may consider hiring an outside firm to facilitate the implementation and monitoring of your new plan.
Whistleblower protection against retaliation is already part of many private companies. With the Lawson decision, though, employers must be proactive in developing, implementing and monitoring anti-retaliation policies. Not only do such actions provide appropriate and lawful protections, they demonstrate your commitment to ethical behavior. ●
Insights Accounting is brought to you by Weaver