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Ethical standards and values in business
Corporate ethics and governance
Ethical standards for employees
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Question 1
Introduction
At the start of this century, unprecedented collapses of Enron and WorldCom have sparked heated world discussions over corporate whistle-blowing. In light of this, legislations and professional codes of conduct are implemented to provide framework on ethical and financial decision-making particularly for auditors. This essay covers prerequisites for an effective corporate whistle-blower hotline, measures to avoid potential pitfalls, as well as analysis on benefits and drawbacks of having a whistle-blower hotline.
Whistle-blower Hotline
What is it?
By incorporating the concepts of whistle-blower of Alford (2001, p.17) and Bok (1980, p.277) into auditing, whistle-blower hotline is a communication system which allows individuals to sound an alarm within the framework of the organization, aiming to spotlight suspected accounting frauds, mismanagement or internal control failures which threaten public interests with convincing evidences.
Why is it necessary?
Whistle-blower hotline helps alleviate the impact of fraudulent acts before it is too late. When Cynthia Cooper revealed US$3.8 billion of fraud in internal audit, WorldCom declared bankrupt with US$45.98 billion of liabilities, 20,000 employees became jobless and investors lost over US$180 billion. (Soltani 2007, p.560) If there had been a hotline, outcome would have been less devastating to stakeholders.
It also provides a platform for employees to voice out. Newcomers worry that seniors will neglect their opinions due to lack of experience. Ethical dilemma is “a situation where a decision must be made about appropriate behaviour”. (Michael 2011, p.131) Employees facing ethical dilemma fear to risk their career for truth. Hence, a hotline prov...
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...ipley, A. (Monday 30th December 2002) Cynthia Cooper: The Night Detective. [Online] Time Magazine. Available from: http://content.time.com/time/subscriber/article/0,33009,1003990-1,00.html [Accessed 13th March 2014]
Maxwell, J. C. (2003) There’s No Such Thing as “Business” Ethics. New York: Warner Business Books.
Cheffers, M., Whalen, D. and Usvyatsky, O. (2013) 2012 Financial Restatements: A Twelve-Year Comparison.
Usvyatsky, O. (2013) Restatements: Where They Come From. [Online] Audit Analytics. Available from: http://www.auditanalytics.com/blog/restatements-where-they-come-from/ [Accessed 18th March]
Securities Exchange Act of 1934
Maleske, M. (2012) 8 ways SOX changed corporate governance. [Online] Inside Counsel. Available from: http://www.insidecounsel.com/2012/01/01/8-ways-sox-changed-corporate-governance?page=3 [Accessed 18th March 2014]
The Sarbanes-Oxley Act was drafted to encourage and protect whistleblowers from retaliation after the fraud scandal that cause the collapse of Enron in 2001. In a 2010 Senate Report found that “external auditors detected only 4.1 percent of uncovered fraud schemes, “whistleblower tips detected 54.1% of uncovered fraud schemes in public companies” and were thirteen times more effective than external audits” (Turpan, 2016). Whistleblowers serve an important service to the public and are more effective than external audits. The CFAA has been used to by employers to retaliate against employees who act as informants for agencies like Internal Revenue Service or Security Exchange Commission to expose fraud. There employees, not to their financial gain, gather information as evidence of fraud by the company. With a broad interpretation of CFAA, the employee would "exceed their authority" and was "unauthorized" to access the information, therefore allowing the company to hide their illegal
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
CPA’s have a confidentiality obligation to not distribute client information, which extends to the actions of the firms that deal with client matters, such as failed audits (workplaceethicsadvice.com). A whistleblower can come out and show these audits that are kept a secret and be protected under the Dodd-Frank Act. The Dodd-Frank Act allows accountants to come forward without punishment and possibly be rewarded with a financial bonus. Even though there will not be any punishment for being a whistle blower, accountants still hesitate because of the image it sends to the companies they may be working for. Corporate accountants might be seen as dishonest or disloyal if they blow the whistle on the wrongdoing of their
On the study “quantitative and qualitative analyses are conducted of 33 cases of internal and external whistleblowers wrongfully fired for reporting wrongdoing” The results were “An employee's tenure in the organization likely impacts his or her choice of internal versus external channels for reporting wrongdoing. Newcomers tend to be less familiar with appropriate channels for internal reporting or effecting change (Miceli and Near, 1992, p. 117), they may identify less with the firm's goals, and they may lack knowledge of shared norms or how the corporate culture operates (Terry).” They also found “external whistleblowers have less tenure with the organization, greater evidence of wrongdoing, and they tend to be more effective in changing organizational practices
Whistleblowers often make their way into the public eye, but what is a whistle blower exactly? What are the criteria? Whistle blowing is "raising the alarm in public about a wrong being committed in private" (Vickers, 2002, p.42). By definition, a whistle blower can only "blow the whistle" on an organization of which he is a member (Vickers, 2002). That point is rather obvious. After all, the concept of being a whistleblower is providing inside information. Also, it brings up a significant problem. People are reluctant to "blow the whistle" because they can lose everything they worked for. It seems almost unfair. The person in this predicament will have to decide whether or not to keep his job as is, or to do the right thing and tel...
In the 1970’s, Ralph Nard coined the term whistleblower referring to when a referee blows a whistle to indicate an illegal or foul play. Oxford dictionaries define whistleblower as “a person who informs on a person or organization regarded as engaging in an unlawful or immoral activity.” This can be in either the government or corporations. The debate on whistleblowers continues to be pertinent in light of recent scandals. Many believe in the value of transparency, but disagree about the correct way to achieve it. This is why we created laws, such as the Whistleblower Act and the Espionage Act. The Whistleblower Act was put in place in order to protect “[A]ny disclosure of information” that a covered employee “reasonably believes” evidences “a violation of any law, rule, or ...
“Faced with what is right, to leave it undone shows a lack of courage” (Confucius Quotes, 2012). The person who does her duty, at great risk to her own interest, when most others would defy from fear is considered a hero (Schafer, 2004). Dr. Nancy Olivieri is a hero who blew the whistle on Apotex, University of Toronto (U of T) and the Hospital for Sick Children (HSC); and fought for her academic rights till the end. Whistle-blowing refers to actions of an employee that breach her loyalty to the organization but serves the public interest. When other constraints proved to be ineffective, whistle-blowing acts as a check on authority of the organization. Whistle-blowers expose severe forms of corruption, waste, and abuse of power within their organization and put the organization in a position where it is answerable to the public, thus enhancing its accountability (Cooper, 2006, pg. 198-205).
Whistle-blowing can be defined many different ways. For example, from page 384 in the book, whistle-blowing is the voluntary release of nonpublic information, as a moral protest, by a member or former member of an organization outside the normal channels of communication to an appropriate audience about illegal and/or immoral conduct in the organization or conduct in the organization that is opposed in some significant way to the public interest. For a simpler explanation of the term whistle-blowing, Merriam-Webster defines the term as, an employee who brings wrongdoing by an employer or other employees to the attention of a government or law enforcement agency and who is commonly vested by statute with rights and remedies for retaliation.
Which allows employees that have observed any illegal acts or acts that raise concern to be able to report to a company hotline that allows that individual to report with the secrecy of the act without fear of retaliation from the company. Generally, whistleblowers are employees that are dedicated to the company and is a model employee. They do not have any intentions of hurting the company, but rather to improve the company. By having an anonymous reporting method of any situations allows employees to feel that the company values their opinions and actually care what is happening within the company. Another reason that this is a plus is because this keeps everybody honest, since there is an open door policy of reporting any illegal acts. The best way to implement this protocol is to educate employees on what the purpose of the program is. Then train the employees on the simple reporting procedures and certify that everything is clearly written and efficiently understood. When the complaint has reported an Ombudsperson or manager will report the matter to upper management to conduct an internal investigation. When all is done and the complaint is true, then actions will be done to correct the problems. In this case of the secretary being fired for refusal to prepare false expense reports for her boss, there is no need for her to be terminated instead this allows the creation of the whistle-blowing hotline for the company to investigate any illegal acts within the
Although Hollate introduced a compliance program and code of conduct when it went public, the programs were put on “the back burner”. This outcome is not surprised for that the company does not pay attention to the programs. It is, therefore, important to “reinforce the values” and “employee a boundary system when actions are inconsistent with the code of conduct” for the purpose of early detection. Tyco provides a good example after its scandal, by initiating “mandatory annual compliance training for all its employees worldwide” and creating the Tyco Guide to Ethical Conduct to familiarize employees with company expectations and help them make ethical decisions. As tips is the most useful method for internal and external sources to detect frauds, the whistleblower hotline should be well communicated with encouragement on reporting any suspicious activity. In addition, to improve the effectiveness of the compliance program and code of conducts, Hollate should implement management monitoring and evaluation on a regular
Treviño, L. K., & Nelson, K. A. (2007). Managing business ethics: Straight talk about how to do it right Fourth ed., Retrieved on July 30, 2010 from www.ecampus.phoenix.edu
In the recent past, there have been several employees who have brought to light corrupt and unethical business practices on the part of their employer. Whistleblowers are known as internal and external individuals who disclose their firms’ illegal behavior. When faced with such an accusation, some companies have tried retaliating against the informer (Beatty 743). As a result of these cases, there are numerous laws that exist that protect employees from retaliation. Within this paper, the most significant whistleblowing protection statutes and acts will be discussed, as well as, important cases, and the ethics behind whistleblowing.
There are number of study regarding to whistleblowing from different aspect of perspectives. A theory is needed in which the nature and parameters of appropriate whistleblowing have to specify in order to articulate coherent understanding of whistleblowing (Hoffman and McNulty, 2010).
Working in any environment, some people are subject to see things that may be illegal or unethical. In any situation like this, how do you determine the best decision, whether to keep quiet or speak out? According to Merriam-Webster dictionary, a whistle-blower is one who reveals something, converts or informs against another person’s transgression in the workplace. In 1989, the United States passed the Whistleblower Protection Act. This act protects federal employees in the workplace if they report any misconduct or wrongdoing. Whistle-blowing is becoming more universal, however is it really worth the whistle-blowers risk and integrity? I will attempt to analyze key facts regarding
Whistle blowing is an attempt of an employee or former employee of a company to reveal what he or she believes to be a wrongdoing in or by a company or organization. Whistle blowing tries to make others aware of practices that are considered illegal or immoral. If the wrongdoing is reported to someone in the company it is said to be internal. Internal whistle blowing tends to do less damage to the company. There is also external whistle blowing. This is where the wrongdoing is reported to the media and brought to the attention of the public. This type of whistle blowing tends to affect the company in a negative way because of bad publicity. It is said that whistle blowing is personal if the wrongdoing affects the whistle blower alone (like sexual harassment), and said to be impersonal if the wrongdoing affects other people. Many people whistle blow for two main reasons: morality and revenge.