Whistleblower Rules May Provide New Niche for Accountants
The new whistleblower provisions, required by the Sarbanes-Oxley Act, are providing another opportunity for accounting firms to help companies cope in the post-Enron environment.
Under the corporate reform law, audit committees must allow employees to report accounting or auditing irregularities without fear of being identified. Some companies are putting whistleblower hotlines in place or posting directions on how to report suspicions of fraud on the company intranet.
In turn, many companies in the U.S. and Canada are looking for outside companies to sift through the anonymous phone calls, e-mails and faxes and investigate suspected fraud, the Globe and Mail of Toronto reported.
"The virtue of having an outside service provider is, first of all, we've done it before so we know how to deal with the many issues that will be raised," said James Hunter, president of KPMG Forensic, a service area of accounting firm KPMG LLP in Toronto.
"And secondly, having an outside provider generally gives employees more confidence that their anonymity will be honored."
Hunter said that, in his experience, about one-third of corporate frauds are brought to light by a whistleblower.
In addition to having investigative experience, firms can also market their background in dealing with complaints that are not related to fraud.
Hunter likens a whistleblower line to a dragnet. "When you go out fishing for cod, basically you'll pick up everything that gets caught in the net, so you have to be prepared to deal with people who call to deal with health and safety issues, issues of a personal nature, issues maybe relating to harassment."
For example, KPMG received 150 calls over a four-month period at one company. Of those, two-thirds were either malicious or unfounded and were handled quickly. "Of the one-third that required more work be done, we ended up with two where there were genuine issues of serious wrongdoing that required attention," Hunter told the Globe and Mail.
Companies should take the whistleblower provisions seriously. The cost of doing a bad job can be significant, said Mike Savage, partner in the investigations and dispute services branch of Ernst & Young LLP in Toronto. "If a call is not dealt with properly, then the whistleblower loses trust in the whistle-blowing channel. And when that happens, the whistleblower tends to look outside, perhaps, for example, to the press, and that's normally not a very desirable outcome for the organization."