Corporate Whistle Blower Initiative

“Corruption wrecks good governance, inhibits development and sustains despotism. This can translate into economic and social failure; not only an affront to decency, but the tinder that ignites conflict. Stamping out corruption altogether may be unrealistic, making the world less hospitable to crooks, is not.” (Economist / London 10 April 2007)

How then should organisations in the private and public sector approach corporate governance and what should they consider when evaluating a corporate whistle blower initiative? At Remgro’s annual general meeting last year, Mr Johann Rupert, non-executive chairman, made some interesting comments, which highlight the reasons for corporate governance (Sake24, 20 August 2010).

Rupert said that it was the integrity of management that one had to trust. Non-executive directors and the principles of corporate governance could not replace ethical conduct or the integrity of management.

If one had good people, a good culture and a good board of directors with people acting collegially, he thought that one stood a good chance of having sufficient transparency with which shareholders could feel comfortable.

Rupert makes the important and correct point that ethical conduct within an organisation – conduct that speaks of integrity – cannot be brought about by mechanical compliance with rules and regulations.

Instead, corporate governance requires a company’s board and top management to be people of integrity. Their conduct must in fact be driven from within – from their character and the ethical values to which they give expression. They have to give visible expression to ethical values and talk about them, require everyone in the organisation to do the same and call to account those who do not do so.

Mere compliance with rules and regulations does not create an ethical culture – a culture of integrity. That occurs only when conduct accords with the practical requirements of ethical values.

Ethics or integrity is the reason for corporate governance making recommendations about the composition of boards, internal audits, risk management and sustainable development. Through the application of recommendations in that regard, the ethical values of corporate governance – responsibility, accountability, fairness and transparency – are given concrete form.

PWC’s 4th Global Economic Crime Survey

1. The Fraud Control Paradox
   “While a company’s control system will eventually lessen the gap between detected and undetected crime, unless it continues to evolve, eventually potential wrongdoers will find ways to circumvent it. When fraudsters and other wrongdoers know what to avoid, they are empowered to devise new and novel ways to pursue their criminal ends.”
2. The Impact of Ethical Guidelines and Compliance Programs
   “Our survey results clearly show that companies that make use of effective ethical guidelines and compliance programs are much less vulnerable to economic crime. The impact of such programs on a company’s vulnerability to crime is significant, whether it is asset misappropriation, accounting fraud, corruption or money laundering.”
3. The Impact of Whistle Blowing Systems
   “In virtually every region of the world Whistle Blowingis playing a major role in uncovering the activities of wrongdoers. More and more companies are now promoting Whistle Blowing policies as an integral part of their risk management programs.
   We believe that Whistle Blowing systemsthat are both well designed and properly implemented can play a decisive role in uncovering criminal activity this is reflected in our respondents’ very positive views on their own Whistle Blowing system’s effectiveness. When this detection toll is correctly implemented, it has the strong potential of effectively uncovering more fraud – increasingly replacing the chance element  of anonymous tip-offs that, in our study, were responsible for detecting fraud in 34% of reported cases.”

Concluding Points From The Survey

“One clear fact is apparent when we look at the results of our 2007 survey: corporate culture is a vital element in whatever fraud risk management programs a company adopts. Keeping this in mind, we recommend that companies consider the following points as they move forward in developing fraud control programs and strategies:

• Replace one-off risk mitigation programs (i.e. one-off review of agent relationships) with comprehensive compliance programs that are fully business operational.
• Proactively monitor vulnerabilities to fraud. It is not so much a question of always expecting the worst, but being prepared for the unexpected; and it should occur, being ready with an effective fraud response plan.
• Developing a strong ethical culture that is clearly evident to all employees. This can be accomplished through setting the right ‘tone at the top’, encouraging company loyalty, providing processes whereby employees can report concerns (i.e. Whistle Blowing systems) and by clearly showing that the penalties fraudsters incur – no matter what their position in the company hierarchy – are serious.
• Be sensitive to the issues that the individual employees might be faced with, such as the wrongdoing of a colleague.
• It is impossible to eradicate economic crime; like the Hydra of myth, cutting off one head merely allows another to grow. This does not mean, however, that prevention is impossible and should therefore be abandoned. On the contrary, companies large and small should take all the precautionary steps they can to deter fraudsters and those who merely contemplate the crime.
• A comprehensive understanding of fraud risk sources and controls provide a foundation for asking informed decisions about how and where the other risks (the right risks for building business) can be taken.”

For professional advice on a Corporate Whistle Blower Intiative, contact Whistle Blowers now.