Tuesday, November 27, 2012

Whistleblowing Is Important In The Accounting Profession

With the extremely competitive culture in business, companies are always looking for ways to separate themselves from the pack. Sadly, some individuals and businesses feel the need to engage in illegal, fraudulent activities to gain an advantage over competitors. Whistleblowing is the act of exposing the wrongdoings of an organization in the hopes of stopping it. Whistleblowing is an important practice that keeps business on a fair and level playing field.

Whistleblowing Prevents And Detects Fraudulent Activities In Business

While honesty and integrity are the staples of many businesses, not all companies follow the accounting guidelines provided by the Financial Accounting Standards Board (FASB). People who blow the whistle on these companies are doing the right thing and are acting in an ethical manner. Dr. Gary Bulmash, an accounting professor in the Robert H. Smith School of Business and an expert on financial accounting and auditing, believes the threat of whistleblowers acts as a deterrent to companies and individuals who are contemplating fraudulent acts to gain an illegal advantage. He explains this to me in an interview:

Also, it protects the stakeholders of a business from any negative repercussions from the unethical activities. People have the right to know the truth about what they are investing in, and whistleblowing is an important factor that helps to protect the truth.  Whistleblowing can uncover problems within the organization, as well as shine the spotlight on larger issues within the industry.

Whistleblowing Can Have Negative Effects As Well

While whistleblowing brings to light the negative actions taken by a company or individual, it can also have negative outcomes for the whistleblower. While laws prohibit a person from being terminated for blowing the whistle on a company, that person may be viewed as someone who cannot be trusted, and alienation within the company is a common consequence. There is a lot of added stress on the whistleblower, which gives witnesses of fraud reason to not come forward and blow the whistle on the company. In a large enough scandal, they could be involved in ugly lawsuits for years to come.

One Whistleblower Can Make A BIG Difference

In 2001, a multi-billion dollar scandal was uncovered that led to the bankruptcy off one of the largest American energy companies. Enron was cooking its books to hide billions of dollars of debt from failed projects. These fraudulent and unethical acts by upper management at Enron led the company to a ridiculously high stock price in 2000. Sherron Watkins, the former VP of Corporate Development at Enron, is considered the main whistleblower that uncovered the scandal. She was named as one of Time Magazine’s “People of the Year” in 2002. Had she not come forward, the scandal could have likely gone unnoticed, and the shareholders would have continued to be misled. While the company went bankrupt and thousands of people lost their jobs, Watkins did the ethical act and came forward through diversity to blow the whistle on the illegal activity.

It Is Important To Act If You Witness Illegal Activities At Work

With the unveiling of large corporate scandals such as Enron in recent years, new laws have been put into place to protect whistleblowers from repercussions from doing the right thing. The Sarbanes-Oxley Act of 2002 provides protection for employees of publicly traded companies who provide evidence of fraud.  It prohibits companies from discharging, demoting, suspending, threatening, harassing, or discriminating against the employee who committed the lawful and ethical act of blowing the whistle on illegal activities. Also, the United States Department of Labor created a Whistleblower Protection Program that provides assistance to whistleblowers that may face adversity because of their ethical actions. As displayed in the graph above, illegal activity in business is not going away. It is imperative that all employees are knowledgeable about fraud and know that they will be protected for doing the right thing. The following clip is from an anonymous individual on the street, and he explains how he defines whistleblowing. While he has the gist of the definition, it is clear that the general public must be more informed about their options when coming forward to "blow the whistle."

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