“PROGRESS THROUGH SHARING” AFIIA 2017 Whistle Blowing...“PROGRESS THROUGH SHARING”...

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“PROGRESS THROUGH SHARING”

2017-05-304th AFIIA Conference - Whistle Blowing Rights, Impediments

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THE FOURTH AFIIA CONFERENCE“Enhancing Governance Effectiveness with Insightful Internal Audit”

Andy Lazarus Chitete CIA, CRMA, FCCA, CA (M), MSc.

Treasurer - AFIIAImmediate Past President - IIA Malawi


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About the Speaker:Andy Lazarus Chitete is the Treasurer of the African Federation ofInstitutes of Internal Auditors (AFIIA) since 2014. He is also theImmediate Past President (IPP) of IIA Malawi. He retired from theElectricity Supply Corporation of Malawi (ESCOM) Limited asSenior Risk Manager on 29th April 2016. On 1 September 2016 hejoined GIZ-Malawi as Technical Advisor (internal Auditing).

Andy is a Certified Internal Auditor (CIA), a Certified RiskManagement Assurer (CRMA), a Fellow of the Association ofChartered Certified Accountants (FCCA), a Chartered Accountant(Malawi) [CA(M)] and holds a Masters Degree (MSc.) in StrategicManagement - University of Derby in UK.

Andy facilitates, speaks and presents at conferences, workshopsand training, locally and internationally, on the subjects of InternalAuditing, Governance, Risk Management, Controls, FraudInvestigations, Strategic Business Management, Accounting andTaxation.Andy Lazarus Chitete

CIA, CRMA, FCCA, CA(M), MSc.

2017-05-30 4th AFIIA Conference - Whistle Blowing Rights, Impediments and Opportunities3

Whistle Blowing - Rights toInformation, Impediments and

Opportunities


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Introduction

Definitions of Whistleblowing and Whistleblower

Importance of Whistle blowing

World Corruption Perception Index

World Report on Occupational Fraud and Abuse

Internal and External Whistleblowing

Channels of whistleblowing

Rights to Information

Confidentiality of Information

Freedom of Speech

Whistleblowing and Leaking of Information

Agenda


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Internal Auditors Responsibilities in Communicating SensitiveInformation

Whistleblowers Bills of Rights

Impediments

Whistleblowers’ unwillingness to blow the whistle

Lack of seriousness by organizations in fraud and corruption detection

Opportunities

Increased Recognition of Importance of Whistleblowing

International bodies’ conventions to fight fraud and corruption

Legislation to protect whistleblowers

Examples of whistleblowing legislation and guidelines

Access to information legislation

Agenda Cont’d


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Definitions of Whistleblowing and Whistleblower There is generally no agreed definitions.

Some are as follows:

The UK’s Committee on Standards in Public Life defines whistleblowing as“raising a concern about malpractice within an organisation”,

The International Labour Organisation refers to whistleblowing as “thereporting by employees of illegal, irregular, dangerous or unethicalpractices by employers”.

A whistleblower is one who reveals wrongdoing within an organization tothe public or to those in positions of authority. (The American Heritage®Dictionary)

Introduction


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Importance of Whistleblowing An important tool in the fight against fraud and corruption (Art. 33 of UN

Convention on Corruption 2003 “shall consider”... “appropriate measuresto provide protection”).

Promotes the right to life –avoidance of physical disasters.

Corporate Governance /Risk Management – Early alerts

Management neglects problems

Provides employees means for disclosing unethical or illegal conduct

Provides employees with knowledge about who to disclose to

Complement audit work

Detect more fraud and corruption

Introduction Cont’d

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WORLD CORRUPTION PERCEPTION INDEX 2016

Introduction Cont’dWORLD CORRUPTION PERCEPTION INDEX 2016

Impact of Fraud and Corruption

Deters foreign investment

Increases the cost of public service delivery

Increases the cost of doing business,

Promotes poverty and underdevelopment

Undermines the rule of law and

Donor aid is stopped


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Corruption hurts all countries, in every region of the world

No Country gets closer to a perfect Score

Over ⅔ of the 176 countries fall below the midpoint of 0 (highly corrupt) and 100 (very clean)

Global average score is 43 indicating endemic corruption

Top scoring countries (yellow) were far outnumbered by the low scoring (orange and red)countries where citizens face the tangible impact of corruption on a daily basis



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Total fraud cases exceeded $6.3 billion with an average loss per case of $2.7million

The average loss for all cases was $150,000 with 23.2% of cases at $1 million or more

The longer a fraud case took the greater the financial damage

Organisations face economic, disaster, supply chain,regulatory and technological risks in different ways andvarying degrees while fraud risk is universally faced byall businesses and government entities.

Any organisation with assets is vulnerable as dishonestindividuals target the assets

The 2016 global fraud study established that:

A typical organisation loses 5% of its revenue to fraudevery year

Introduction Cont’d2016 World Report to the nations on Occupational Fraud and Abuse


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2016 World Report to the nations on Occupational Fraud and Abuse

The most common detection method was tips (39.1% of cases)

Organisations that had reporting hotlines more likely detected fraud than thosewithout (47.3% Vs 28.2%)

2.4%

3.8%

3.8%

5.5%

5.5%

5.6%

13.4%

16.5%

39.1%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%

Notified by Law Enforcement

External Audit

Document Examination

Other

Account Reconciliation

By Accident

Management Review

Internal Audit

Tips

OCCUPATIONAL FRAUDS DETECTION METHODS


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Internal and External Whistleblowing

Internal whistleblowing is contained within the organisation

External Whistleblowing involves reporting to an outside agency

However, Internal hotlines are often open to external whistlebowers

A hotline may be outsourced to a thirdparty who operates it for the organisation

Channels of Whistleblowing:

A special telephone hotline

Email based service

Web form

Regular mail

Fax

Simply speaking to trusted right persons

Introduction Cont’d Rights to Information

Confidentiality of Information

Confidential workplace information can be in three classes i.e. :

Employee,

Management and

Business information

Failure to secure confidentiality of information can lead to:

Loss of business

Misuse of the information to commit illegal activity

Loss of employee trust, confidence and loyalty


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Rights to Information Cont’d

Freedom of Speech

Article 10(1) of the European Convention (ECHR) states that: “Everyone has the rightto freedom of expression. This right shall include freedom to hold opinions and toreceive and impart information and ideas without interference by public authority andregardless of frontiers...”

However, this does not provide blanket support for whistleblowers because Article10(2) states that: “The exercise of these freedoms, since it carries with it duties andresponsibilities, may be subject to such formalities, conditions, restrictions or penaltiesas are prescribed by law and are necessary in a democratic society, in the interests ofnational security, territorial integrity or public safety. for the prevention of disorder orcrime…”.

Abraham Mansbach stated that the act of whistleblowing embodies and represents apractice of 'fearless speech' which is a crucial element in democracy. He howeverexpressed concern over the tension that exists between the socio-political facet ofwhistleblowing and the private sphere.


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Rights to Information Cont’dFreedom of Speech Cont’d

People become whistleblowers as they go through the process of disclosing what they believeaffects their lives. In doing so, some organisational secrecy may be uncovered.

Whistleblowing activism claims that such secrecy should not be considered as normal or obvious,but rather that the interests of society must take priority over those of organisations. If someoneposes a Whistleblowing and Democratic Values risk to society, then society has a right to knowabout it.

The 1990s consensus supports the balancing of organisational and public interest by allowing andnurturing internal whistleblowing so that malpractice can be remedied without causing a publicscandal and protection against reprisals can be provided.

Research by Marcia Miceli, Janet Near, and Terry Dworkin in the US established that internal andexternal whistleblowing are linked. External whistleblowing is usually preceded by the raising ofconcerns internally.

Hence, how organisations manage internal whistleblowing is important, not just in the interests ofthe organisation but also in the interests of the public good and democracy.


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Rights to Information Cont’dWhistleblowing and Leaking of Information

People need to be persuaded to raise their concerns internally rather than externally orinternationally

Many individuals have come to realise that if whistleblowers are not protected by law itmight be wiser to leak information anonymously than to use official channels.

The problem of being identified is demonstrated by the case of Bradley Manning, whowas convicted by court-martial in July2013 of violations of the Espionage Act and otheroffenses, after disclosing to WikiLeaks nearly three-quarters of a million classified, orunclassified but sensitive military and diplomatic documents. He was sentenced inAugust 2013 but President Obama commuted his sentence, hence was scheduled to bereleased on May 17, 2017.

One other trend worth highlighting is the more widespread acceptance thatwhistleblowing is an important tool in the fight against fraud and corruption


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Rights to Information Cont’dInternal Auditors Responsibilities in Communicating Sensitive Information

Practice Advisory 2440-2: Communicating Sensitive Information Within and Outside theChain of Command, provides guidance:

The auditor normally communicates credible substantial information in a timely mannerto senior management and the board in accordance with Standard 2060 and PA 2060-1following the normal chain of command

In accordance with Standard 2600 the auditor should present the information anddifference of opinion to the board If senior management is exposing the organisation tounacceptable risk and is not taking appropriate action

For certain types of sensitive occurrences e.g. fraudulent financial reporting by publiclytraded securities organisations, the typical chain of command communication may needto be accelerated to the board even when the auditor and management have agreed onwhich action to take.


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Internal Auditors Responsibilities in Communicating Sensitive Information Cont’d

When the auditor has to communicate information to persons outside the normal chainof command or even outside the organisation (whistle blow) she/he should first considerthe merits and demerits of such an action

Knowledge of the laws and regulations of the industry, obtaining legal advise wherevernecessary and compliance with the IIA’s code of ethic are important to the auditor

The auditor may investigate complaints, especially if related to fraud and corruption, and

may Manage an external provider, giving advice, or operating a helpline.


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Whistleblowers Bills of Rights

Many countries in the world have passed whistle blower rights’ laws that give whistleblowers the right to:

Communication: Freedom to disclosures provided they respect the confidentiality ofsensitive information.

Protection from Retaliation: Institutions have a duty not to tolerate or engage in retaliationagainst good-faith whistle blowers.

Fair Procedures: Institutions have a duty to provide fair and objective procedures for examiningand resolving complaints, disputes, and allegations of misconduct.

Procedures free from Partiality: Institutions have a duty to follow procedures that are not taintedby partiality arising from personal or institutional conflict of interest or other sources of bias


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Whistleblowers Bills of Rights Cont’d

Information: Institutions have a duty to elicit and evaluate fully and objectively information aboutconcerns raised by whistle blowers.

Timely Processes: Institutions have a duty to handle cases involving alleged misconduct asexpeditiously as is possible without compromising responsible resolutions.

Vindication: At the conclusion of proceedings, institutions have a responsibility to credit promptly--in public and/or in private as appropriate- those whose allegations are substantiated andconcluded.


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ImpedimentsUnwillingness of whistleblowers to blow the whistle

The 2011 National Business Ethics Supplemental (NBES) Research Report establishedwhat goes through the mind of the whistleblower before he decides to blow the whistle.

The research suggested many possible determinants of an individual’s willingness towhistle blow, including:

Awareness: The importance or seriousness of the act impacts on his willingness to usea hotline

Agency: His perceptions of responsibility for reporting the act may impact hiswillingness to report the event

Security and Investment: The organization’s reputation for retaliation will alsoinfluence his perception to making a report.

Support and Connectedness: The whistle blower’s trust on some authorities willinfluence his perception to making a report


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Impediments Cont’d


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Unwillingness of whistleblowers to blow the whistle Cont’d

The 2014 Deloitte Forensic India Survey Report on making whistleblowingprograms successful in corporate India established that employees don’t whistleblow because of:

Fear of retaliation or harassment

Fear of termination or suspension

Inadequate channels to voice concern

No precedent of action taken by the management

Other – e.g. (i) Time – workload, (ii) Not mandatory, (iii) Small concerns mightbe dismissed, (iv) No knowledge of overall picture, (v) Lack of knowledge aboutwhistle blowing, (vi) Not promoted by organisation’s culture, and (vii) Lack ofsupport, advice and information.

(See results of the survey in the graph below)


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Unwillingness of whistleblowers to blow the whistle Cont’d


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Impediments Cont’dLack of Seriousness by organisations in corruption and fraud detection

Most organisations perceive whistleblowing as ‘yet another measure to implement’ aspart of the larger fraud risk management efforts and, hence, it gets relegated to a tick inthe box

Organisations must understand that whistleblowing is, perhaps, the only tool that comesclose to pointing out a fraud in its early stages and must therefore be supported byensuring that:

Data from the whistle blower hotline is continuously monitored and integrated into thelarger fraud risk management systems so that even small irregularities can bedetected early

More time and resources on building robust whistleblowing systems is invested

Employees are trained on the existence and use of the whistleblowing system


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Lack of Seriousness by organisations in corruption and fraud detectionCont’d

The hotlines are functional and available through multiple access points.

The hotlines promise confidentiality to users

Dedicated teams to run the hotlines are established.

The person managing the hotline should not have a full time administrative orhuman resources responsibility.

Senior management is committed to the success of the whistle blowerhotline(Tone at the Top),

Senior Management frequently communicate about the hotline to employees.

Organisations should consider outsourcing the whistle blower hotlinemanagement to enhance its independence and whistle blowers’ trust.


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Impediments Cont’d OpportunitiesIncreased recognition of Importance of Whistle blowing

More recently, organisations have realised that whistleblower mechanisms are apossible tool for the detection, and possibly prevention, of corporate wrong-doing.

For example the Sarbanes-Oxley Act (2002) requires audit committees toestablish procedures for:

The receipt, retention, and treatment of complaints received by the organisationregarding accounting, internal accounting controls, or auditing matters; and

The confidential, anonymous submission by employees of the organisation ofconcerns regarding questionable accounting or auditing matters.

Globally, organisations are publishing the number of whistle blower complaintsreceived in a bid to encourage more whistleblowing e.g. the US Department ofJustice reported over 3,000 whistle blower tips between 2012 and 2013


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Opportunities

Increased recognition of Importance of Whistle blowing Cont’d

Organisations are establishing a whistleblowing hotlines for better governanceand reduction of fraud

Organisations understand that employees are their eyes and ears – i.e. they seeand hear everything that goes on within, including inappropriate behaviour and whois involved in perpetrating it.

The G20 Anti-Corruption Working Group prepares monitoring report for theLeaders’ Summits.

International bodies such as the United Nations, the European Union and othersmake some conventions to fight Fraud and Corruption and protect whistle blowersin the world


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Opportunities Cont’dLegislation and Guidelines to protect whistle blowers

Many countries in the world are introducing whistleblowing legislation, regulation orguidance in order to protect whistle blowers from retaliation of wrongdoers and incentivisethem with financial rewards.

Different countries are at different stages of implementing their legislation and guidelines.

Examples of whistle blowing legislation and guidelines are as follows:

United States of America (USA) : The Sarbanes Oxley Act (SOX) (2002) is acomprehensive response to corporate scandals and failures which includes extensiveprovision for whistleblowing and whistle blower protection. The Sarbanes Oxley Act

United Kingdom (UK) : The Public Interest Disclosure Act (PIDA) (1998) was borne out ofthe enquiries into several major disasters (such as the sinking of the Herald of FreeEnterprise, the Clapham rail crash and the collapse of BCCI)


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Opportunities Cont’dLegislation and Guidelines to protect whistle blowers Cont’d

Legislation similar to PIDA has been introduced in various other countries (e.g. Australia,New Zealand, South Africa)

Other European Countries – European countries outside the UK and Ireland haveresisted implementation of whistleblowing legislation for various reasons. In France theirbelief is that, organisations have so many controls and management have a responsibilityto prevent malpractices hence it is not necessary to place the burden of whistle blowing onstaff.

Africa: some few countries such as Uganda (Whistle blowers Protection Act 2010) andGhana (Whistle blowers Act 2006) legislated whistleblowing while so many others are inthe process of coming up with the legislation. Many organisations however have policiesthat protect whistle blowers.

Malaysia: Securities Industry Act amendments advocate protection against whistleblowers


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Opportunities Cont’d

Legislation and Guidelines to protect whistle blowers Cont’d

Corporate governance codes (e.g., U.K., Australia, Singapore)

Companies’ codes of ethics/conduct encouraging or even imposing a duty onemployees to report breaches


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Opportunities Cont’dAccess to Information (ATI) Legislation

Access to information is widely recognized as a cornerstone of good governance and animportant anti-corruption tool.

Almost 100 countries, including 10 in Africa, have national laws or decrees that recognizethe public’s right to access information or records from government. In Africa, the followingare countries in Africa which ATI legislation by 2011

South Africa: Promotion of Access to Information Act (2000)Angola: Freedom of information Law (2002)Zimbabwe: Access to Information and Protection of Privacy Act (2002)Uganda: Access to Information Act (2005)Ethiopia: Freedom of Information and Mass Media Law (2008)Liberia: Freedom of Information Act (2010)Guinea: Organic law on the right of access to Public Information (2010)Nigeria: Freedom of Information Law (2011)Tunisia: Decree on Access to the Administrative Documents of Public Authorities ofTunisia (2011)Niger: Charter on Access to Public and Administrative Documents (2011)


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Opportunities Cont’dATI in Africa


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AFIIA 2017

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