Whistleblowing & Accounting

Accountants --- particularly those licensed by professional organizations --- have a responsibility to maintain the interest of the general public in a company. Whistleblowing is the action taken when an accountant or other employee reports fraudulent or misleading financial transactions to an outside authority.

History

Whistleblowing dates to 1863. The False Claims Act rewarded individuals who reported the defrauding of government. The Whistleblower Protection Act in 1989 and its amendments provide protection from retaliation when disclosing waste and fraud in the public sector. The Sarbanes-Oxley Act of 2002, or SOX, extends whistleblower protection to employees of publicly held companies.

Features

SOX protects employees who report fraud in their company to a federal agency, law enforcement or Congress. This Act also requires auditors to report any inappropriate activity from their clients. Whistleblowing also allows employees in non-publicly held companies to report fraudulent information.

Considerations

Companies can implement internal whistleblowing policies to protect information in their accounting processes. Fraud accounts for $600 billion in losses for companies annually, according to a 2006 report from the Association of Certified Fraud Examiners. The report also notes internal and external tips help detect 34 percent of all fraudulent activity.

References

• The CPA Journal: Whistleblowing and Good Governance
• University of Tennessee-Knoxville: Managerial Teams, Whistle-Blowing, and Accounting Fraud