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What to do if a whistleblower alleges fraud at a client?

23rd Mar 2018
CEO Expolink
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UK reported fraud hit a 15 year high of £2.11bn in 2017 according to data from BDO. As accountants know, this is just the tip of the iceberg with plenty of fraud never reported publicly and much undetected.

Despite the importance of controls and audits, the Association of Certified Fraud Examiners say the most common way frauds are detected is ‘tips’.

Its recent study reported that 39.1% of fraud is detected after tip-offs compared to 16.5% through internal audits.

The chances are that as an auditor and adviser to multiple SME business owners, you will encounter situations where allegations of fraud or financial impropriety have been raised through tip-offs, and your advice sought. But what should you say?

There are several misconceptions about whistleblowing that I’d like to try and dispel to give you the best possible context for responding to your client.

A relatively common reaction among directors who are unaccustomed to handling such allegations is to assume they are either ‘trivial matters’ or maliciously motivated. 

Having had more than 15 years’ experience implementing independent whistleblowing services for many hundreds of companies globally, I can honestly say the incidence of the latter - malicious reporting - is actually very low.

Numerous studies show that whistleblowers (anonymous or otherwise) are often motivated by their own personal sense of integrity and a genuine desire to protect their colleagues or the public. Similarly, researchers in the USA have found that even where whistleblowers are entitled to large statutory payments, few are initially even aware of (or driven by) financial reward.

Even when a malicious report does occur, the very fact it has been made is usually a symptom of an underlying problem that requires investigation.

The same logic applies to so-called ‘trivial’ reports. An employee disclosure we received several years ago regarding a lack of lavatory paper in the washrooms initially seemed a minor issue – until several similar reports came in. It culminated in the discovery by our client of a large procurement fraud and criminal proceedings duly followed.

Another common reaction among senior individuals is a desire to identify anonymous whistleblowers.

This is a potentially fatal move that could confirm your employees’ worst fears about the threat of reprisal, effectively ensuring that will be the last report you receive.

It’s important to remember that the biggest fear of anyone who speaks up is that they will be retaliated against - either in the form of dismissal, harmed career prospects or simply being “sent to Coventry” by colleagues.

Learning how to deal with sensitive reports correctly is critical. This is particularly the case where complex financial issues are involved, and mishandling could lead to a variety of problems.

On the one hand, mishandling the response could mean suspects are tipped off and evidence destroyed while, on the other, employees could have their anonymity compromised. Word of a mishandled case will spread quickly through the grapevine and deter others.

Should a client receive a fraud tip-off and seek your advice, the most important first step is for all concerned to maintain objectivity and confidentiality – and avoid the temptation to immediately seek to dismiss or ‘unmask’ the whistleblower.   

You cannot presume either the guilt or innocence of the accused. However, it is safe to assume the discloser will be watching their employer’s next move attentively - and may even withhold crucial additional evidence until they feel reassured by your client’s initial response.  

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