No takers for anonymous whistle-blowers
Wednesday, 14 July 2010, 14:23 IST | 2 Comments
Washington: Corporate directors, who are ultimately responsible for internal whistle-blowing systems, don't tend to take action at all on anonymous allegations, even when they involve very serious accounting breaches. According to a new study, if an identical non-anonymous allegation surfaces, audit committees often launch into action and the corporate director allocates significant resources to the investigations, according to possibly the first study to investigate the whistle-blowing issue, the Journal of Management Studies reported. Public corporations are required to provide anonymous whistle-blowing channels to their employees. Anonymous reporting channels are intended to protect shareholders from financial fraud by making it more likely that fraud will be reported to the board of directors. The study explores how these whistle-blowing channels allow employees at major U.S. corporations to report fraudulent accounting and auditing matters without fear of retaliation from management. "We found that when an allegation poses a threat to a director's professional reputation, a form of distortion of information occurs," said Jake Rose, associate professor at the University of New Hampshire and study co-author. "An audit committee has an incentive to not investigate the allegation when it creates a reputation threat, and this causes the committee member to believe the allegation is less credible," Rose added, according to a University of New Hampshire statement. The study finds that anonymous allegations are treated very differently from non-anonymous allegations, and anonymous allegations are largely ignored, particularly when the allegation threatens a member of leadership's reputation. Over 80 audit committee members from publicly traded companies participated in the study.