Inside Jobs: The Role of Whistle-blowers
July 2008
IN THIS ISSUE
— Speaking Out: How Whistle-blowers Can Save Your Company
— Protecting Whistle-blowers While Protecting Your Company
— In the next issue
GREETINGS!
Welcome to the July 2008 edition of our newsletter! In this issue, we’ll look at how whistle-blowers in your company can help ferret out fraud, waste and abuse.
SPEAKING OUT: HOW WHISTLE-BLOWERS CAN SAVE YOUR COMPANY
Secrets. Everyone has them. Since organizations are simply collective groups of people working toward the same goal, the chances are that your company has its fair share of secrets. Sometimes these secrets can be costly if they aren’t exposed before a major fraud or defalcation occurs. This is where whistle-blowers, named after the English “bobbies” who would blow their whistle to alert the neighborhood to a crime in progress, step in.
Some whistle-blowers, such as Sherron Watkins of Enron and Dr. Jeffrey Wigand of Brown & Williamson Tobacco, gain fame and notoriety for their willingness to expose the wrong-doing going on at their company. Most whistle-blowers aren’t named TIME Magazine’s Person of the Year, however (as Watkins was), and risk their livelihoods simply to have truths made known. In so doing, most whistle-blowers make their case in relative obscurity, and at a potentially high personal cost. Next, we’ll examine some of the protections available to them, and ways the system can be abused.
PROTECTING WHISTLE-BLOWERS WHILE PROTECTING YOUR COMPANY
While many companies have set up employee fraud hotlines, which we have discussed in earlier newsletters, most do not actively encourage employees to “spill the beans” about operations a company might condone that the broader public might not — the marketing of tobacco to young children, for instance. Because companies may not have an interest in protecting employees who disclose various operations, the federal government has established a series of whistle-blower protections. Principal among these is the ability to be a “relator” in a federal civil suit, where an employee would work with the relevant government agency, to aid that agency in making a case for impropriety and seeking a civil remedy. Under the False Claims Act, persons who bring a “qui tam” action against a company can, if the company is found liable, receive as much as 30 percent of the amount of civil penalties. The risks can be great, however, as “qui tam” filers make their identity known to the defendant company, their (often former) employer.
In fiscal year 2003, $2.1 billion was received in settlements or judgments arising from whistle-blower claims. There is a downside to this level of accountability, however: it can be abused. We have investigated cases where serial “qui tam” filers have, for personal and financial reasons, filed multiple, often spurious actions against their employer. These actions resulted in many man-hours of wasted time, both on the part of the government agencies assisting in the case and the employers who had to rebut the charges. Our background check revealed that the whistle-blower in question had fraudulently obtained the licenses required to perform his job in the first place, and his claims were dismissed.
This is not to say that a few isolated cases should diminish the importance of how whistle-blowers help maintain corporate accountability. If your company is faced with an action brought by a whistle-blower, a thorough background check of the employee, specifically targeting whether the employee had a history of such claims at previous jobs, would be in order. On balance, the whistle-blower system allows employees to feel safe in disclosing improper practices, but like any system it can be subject to abuse.
IN THE NEXT ISSUE
In our August 2008 issue, we’ll examine the risks posed by elder care fraud and Medicare fraud.