write a 2 pages paper about Whistleblowers
jwmonkey
eia_chapter_12.pptxChapter 12: Duties as a Whistleblower
Whistleblower
A whistleblower is an employee or former employee who reports misconduct to people or entities that have the power and presumed willingness to take corrective action.
Whistleblowers can be internal or external.
Whistleblower Motivations
Whistleblower motivations include:
Revenge
Reputation Preservation
Altruism
Collecting financial rewards
Fasle Claims Act
Whistleblower (cont)
Whistleblower-
One of the most well known whistleblowers is Jeffrey Wigand, who exposed the Big Tobacco scandal, revealing that executives of the companies knew that cigarettes were addictive while approving the addition of known carcinogenic ingredients to the cigarettes.
http://www.imdb.com/title/tt0140352/trailers-screenplay-E11632-10-2
Think Russell Crowe in the movie The Insider.
More recent whistleblowers include…..
Whistleblower (cont)
Cynthia Cooper (Worldcom), Coleen Rowley (FBI), and Sherron Watkins (Enron)
“their lives may not have been at stake, but Watkins, Rowley and Cooper put pretty much everything else on the line. Their jobs, their health, their privacy, their sanity--they risked all of them to bring us badly needed word of trouble inside crucial institutions”
Whistleblower Programs
| Feature | IRS | Dodd-Frank Act |
| Focus | Tax violations | Federal securities laws violations, including bribery, fraudulent accounting, and insider trading |
| Submitted information | Secret information or publicly available information | Only “original”, nonpublic information |
| Minimum threshold for recovery | Over $2 million | Over $1 million |
| Typical range of award | 15% to 30% of IRS Recovery | 15% to 30% of SEC Recovery |
| Anonymity protected? | Yes, usually | Yes |
| Protection against workplace retaliation? | No | Yes |
Whistleblower Laws
Section 806 of SOX
Only applies to publicly traded companies
File a complaint with the Department of Labor (DOL)
If DOL hasn’t ruled on it within 180 days, it goes to federal court or a civil suit may be filed
Remedies of employee include relief “to make the employee whole”, compensatory damages (same job back, back pay, special damages as result of action)
Whistleblower Laws (cont)
Do Whistleblower laws (specifically SOX section 806 provisions) work?
whistle-blowers still face a painful cost-benefit decision: whether a lawsuit with uncertain chances of success is worth the professional and personal sacrifices that will assuredly be required
Many employees have to change industries after filing suit, whether the case has merit or not
A study that looked at 470 cases filed between 2002-2005, the whistleblower won only 3.6% of the time.
Whistleblower Laws (cont)
What can/should employers do?
Have an independently-operated whistleblower complaint system. If the system is operated by personnel skilled in the underlying accounting, auditing, and internal control issues, proper information will be immediately collected, so that investigations are cost-effective and complete.
Must be overseen by audit committee
Ethics Point is a company specializing in ethics hotlines and other whistleblowing initiatives. (http://www.ethicspoint.com/about/)
This is required of all publicly traded companies per Section 806.
Whistleblower Cases: Collins v. Beazer Homes and Richards v. Lexmark Intl
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Whistleblower Cases
Please read the Collins v. Beazer Homes and Richards v. Lexmark Intl cases in the following link
http://www.nixonpeabody.com/linked_media/publications/ELA_12282004.pdf
Whistleblower Cases (cont)
Collins v. Beazer Homes-
Collins was hired as the Marketing Director
Immediately after hired, Collins began having conflicts with her superiors (division president, director of sales) regarding favoring a particular advertising agency.
Within two months, she entered into an agreement with another agency.
She went to VP of Sales and Marketing with her complaints. She stated to him that:
she objected to division President’s management style
she objected the way the company was paying a prior ad agency
she objected to the way marketing costs were being categorized.
She secretly tape recorded conversation.
She sent an email to CEO with made vague complaints of "cover-up/corruption", but did not provide specifics. At no time was illegal activity alleged.
She met with VP of Human Resources and was fired.
She filed a complaint with DOJ.
Whistleblower Cases (cont)
Decision for Collins v. Beazer Homes:
The matter was heard by a federal judge because the employee filed in district court when OSHA did not issue a ruling within 180 days.
The court ruled in favor of Collins, because Beazer couldn’t establish that they would have fired her even absent her protected activity.
She was given her job back and received back pay (compensatory damages not mentioned).
Whistleblower Cases (cont)
Richard v. Lexmark International
Richards was a poor performer with well-documented performance problems during two years with Lexmark
Lexmark had come close to terminating Richards
However, in December 2002, he was given the assignment to assess the inflated levels of inventory
On Jan 3, 2003, he provided preliminary analysis showing erroneous inventory management reporting
Jan 4, 2003, he was fired.
He filed a suit with DOJ under Section 806 of SOX.
Whistleblower Cases (cont)
Decision for Richards v. Lexmark Intl
Lexmark argued that it would have fired Richards regardless of the report findings
Nevertheless, an the judge ruled that Richards' termination was retaliatory when it occurred a day after Richard's filed a complaint, because the timing created a causation inference.
Statutory Incentives for Whistleblowers
Discussion Question:
You currently work in the SEC reporting division of a midsize, publicly traded company. The company has a Board of Directors and an Audit Committee. You have worked there for three years and you have a cordial but professional relationship with your direct supervisor.
The company has a hotline for reporting “improper accounting, fraud, embezzlement, and other misconduct.” The hotline accepts anonymous calls and is staffed by a division of a law firm that specializes in ethics and corporate compliance. The company also has a Code of Conduct that strictly prohibits retaliation against any employee who reasonably believes that misconduct has occurred. In each of the following cases, state whether the likelihood of you reporting misconduct to your direct supervisor is Low, Medium, or High:
Statutory Incentives for Whistleblowers
Late at night, you saw a colleague place an expensive art object from the company’s front lobby in the trunk of his car and drive away.
Late at night, you saw the company CEO place an expensive art object from the company’s front lobby in the trunk of his car and drive away.
You were asked to improperly classify factory rent in General Overhead. It correctly should be capitalized was an element of Work in Process Inventory. Your colleague told you that, by doing this, the company’s Gross Profit Margin on sales would be higher, at least in the short run. This will lead stock market analysts to upgrade the company’s stock.
Statutory Incentives for Whistleblowers
You saw a colleague deliberately book a single sale twice. This results in reported Sales being too high.
You saw a colleague deliberately move a sale from January, Year 2, into December, Year 1 by altering the shipping and invoice dates.
Your company sustained a loss when a burglary occurred. The actual loss was $30,000, but your colleague exaggerated this loss, filing a claim with the company’s insurer to recover for a $70,000 loss.
Statutory Incentives for Whistleblowers
A client offered you a bribe during the course of an audit to “look the other way” and accelerate the recording of an installment sale to a high-risk customer entirely into the year that goods were delivered. Under GAAP concerning sales to uncreditworthy customers, some of the revenue properly should have been deferred until installment payments are received in a later year.
You suspect that a member of your internal audit team accepted a bribe because she has approved of a depreciation method for expected environmental reclamation costs that is grossly incorrect.
Statutory Incentives for Whistleblowers
A foreign government official demanded a bribe from you to facilitate your company’s shipment of goods “rapidly” through their Customs and Importation Department.
You suspect that a partner at your CPA firm is sharing confidential information about one of your clients with an outside investor that is trading the client company’s stock.
You witnessed a fellow employee violating the company’s policy against using the Internet during work hours.
You witnessed a fellow employee using pirated software at work.
