Handling Misconduct at the Management Level the Right Way

Written by Sargon Youmara, Partner, Vonya Global

WhistleblowerRecently, the SEC awarded a whistleblower with more than $300,000. Though the employee first reported misconduct internally, the company failed to act and suffered greater consequences for inaction. This was the first such award given to a whistleblower working in compliance, and acts as a signal to the business community: respond appropriately to reports of misconduct, or pay the price.

It is easy for management to feel uncomfortable given such headlines. However, the lesson here is to encourage internal whistleblowing and adopt reporting procedures that maximize employee comfort.

Research proves that most whistleblowers try to report fraud internally before approaching the government. Employees only go to outside authorities when their complaints are ineffectively resolved or after they hit walls internally. To minimize your exposure to liability, enhance the comfort level of your employees and make sure that your company facilitates internal reports.

That same research shows that when businesses implement even-handed procedures for assessing complaints and treat reporting employees with respect, employees are far more likely to feel satisfied by the process, regardless of the result. Employees need to have confidence in the misconduct reporting process in order to use it.

Fortunately, there are some concrete strategies for encouraging internal whistleblowing:

Provide the Right Training

Let your employees know you have a reporting program, and demonstrate how to use it. Training helps employees see that you are committed to resolving misconduct complaints in house. Publicize your company’s internal reporting policy regularly, not just at hiring time, and remind everyone that they can report misconduct and fraud without fear of retaliation.

You should not tell your employees that they have to report internally first; regulators view this sort of mandate unfavorably, and such requirements have been expressly rejected by the SEC.

Put the Best Person in Charge

You need an open door policy and you need the right person behind that door; otherwise, no one will come in. Make sure the officer in charge of complaints is someone accessible that your employees can trust. Be absolutely certain that he or she understands confidentiality, and train them to be neutral.

Ensure that your investigator knows the applicable laws and tools to resolve issues. While protecting confidentiality is important, make sure the investigator communicates with everyone involved in a complaint. In order to maintain confidence in the system, the investigator should keep whistleblowers, the accused, and witnesses involved and informed.

Create an Avenue for Anonymous Reporting

Whether it is a comment box, an online form, or a hotline, make sure that your employees have a way to report misconduct and fraud without revealing their identity. No one likes to think that their organization could be dangerous or discriminatory, but it happens.

Talk To Your Employees About Their Experiences

Ask employees about misconduct routinely and in exit interviews. Be sure to let them know that responding is optional, but document willing answers thoroughly.

It is not a good idea to ask employees, during their employment or in an exit interview, to acknowledge whether they have disclosed anything confidential to the government. Furthermore, never ask employees to give up their anti-retaliation rights in any way.

Focus On the Process

Make sure all procedures are transparent. Explain the process in simple terms, not legalese. Always reassure employees, in no uncertain terms, that retaliation for reporting fraud or misconduct will not be tolerated.

Make sure that employees know that you are listening. When people complain about the fax machine, fix it. Listening to little complaints can foster confidence before a big complaint comes around.

Make It Worth Their While

Research and now experience shows that incentives, even just recognition, make employees more likely to report misconduct. Reward this kind of ethical behavior.

Lead By Example

Show your team that you are ethical and that they work for a company that does not tolerate unethical behavior. When reporting misconduct is simply an unpleasant but necessary aspect of doing business, employees are far more likely to take part.


Sargon-Youmara-Internal-Audit-ExecutiveThis post was contributed by Sargon Youmara, a Partner with Vonya Global. Sargon Youmara has 20 years of diverse experience in business risk consulting, internal audit and public accounting. He leads various internal audit initiatives and Sarbanes-Oxley projects to a wide-array of companies from start-ups to multi-national corporations. Sargon is the Risk and Internal Control knowledge partner to his clients and has a depth of experience in:

If you would like to contact or connect with Sargon directly you can find his profile on LinkedIn: http://www.linkedin.com/in/syoumara.