WITH THE NUMERous allegations of financial fraud and dubious accounting practices in the headlines these days, organizations are increasingly turning to internal whistleblower programs to discover and correct improper activities. In fact, Section 301.4 of the U.S. Sarbanes-Oxley Act of 2002 requires public companies to establish procedures for "a) the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters; and b) the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters."
Although whistleblowing is commonly thought of as the act of revealing inappropriate activities to parties outside an organization, internal whistleblower programs allow management to take corrective action inside a corporation without the negative effects that come with public disclosure, such as financial distress, loss of capital for investors, and a drop in value in the stock market. Through these programs, employees are encouraged to discreetly and anonymously disclose concerns about accounting and operational issues. This way, all employees help the organization stay on track, and internal auditors, who cannot possibly examine every process and transaction, cast a wider net in their risk-management efforts.
Internal auditors can play an integral role in the development of whistleblower programs by working with management to create a system that protects the anonymity of the employees who use it and gives them maximum access to the tools that will help them report their concerns. Effective whistleblower programs are developed through four distinct phases--assessment, building, program release, and performance monitoring.
PHASE ONE: ASSESSMENT
During the assessment phase, management must evaluate the organization's needs, define a protocol for the program, create reporting mechanisms, and establish an oversight board to ensure allegations are handled appropriately
Although whistleblowing is commonly thought of as the act of revealing inappropriate activities to parties outside an organization, internal whistleblower programs allow management to take corrective action inside a corporation without the negative effects that come with public disclosure, such as financial distress, loss of capital for investors, and a drop in value in the stock market. Through these programs, employees are encouraged to discreetly and anonymously disclose concerns about accounting and operational issues. This way, all employees help the organization stay on track, and internal auditors, who cannot possibly examine every process and transaction, cast a wider net in their risk-management efforts.
Internal auditors can play an integral role in the development of whistleblower programs by working with management to create a system that protects the anonymity of the employees who use it and gives them maximum access to the tools that will help them report their concerns. Effective whistleblower programs are developed through four distinct phases--assessment, building, program release, and performance monitoring.
PHASE ONE: ASSESSMENT
During the assessment phase, management must evaluate the organization's needs, define a protocol for the program, create reporting mechanisms, and establish an oversight board to ensure allegations are handled appropriately
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