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Promoting Whistle Blowing as an effective mechanism for fraud prevention and detection in organisations.
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ARiMI – Asia Risk Management Ins0tute NOTES
By MARC RONEZ Chief Risk Strategist & Master Coach Asia Risk Management Institute
Encouraging WHISTLE BLOWING as an effec8ve tool to Prevent & Detect Fraud
IA Conference 2013, ASLI Malaysia, 9 April 2013
Agenda for this Session
þ Understand what blowing the whistle means and why it is
important for organizations þ Reasons why it is not easy to blow the whistle on
unethical and fraudulent management practices þ Identify the policies and systems needed to encourage
appropriate whistle blowing in your organization
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1 - Understanding what is.. a Whistle Blower and the Need for more effective Whistle Blowing Policies & Systems
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NEED for more effec8ve Fraud Risk Management?
A continuous and constant stream of crises and corporate failures over the past 10-15 years have put the spotlight on ethical and fraud issues in Organizations.
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Root causes for many Organization's Problems
The examinations that followed many corporate collapses revealed a common theme behind the institutions‘ troubles i.e. The People’s Factor!:
high-profile scandals involving unethical abuse of corporate power due to greed and conflict of Interests,
In a number of cases, fraudulent/criminal activities by corporate officers.
A lack of responsibility, accountability and oversight of corporate operations at every level of management;
An inherent Blindness and human Complacency to Risk; A people issue circumventing control systems in place
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Famous “Fallen” Corporate Leaders
Ken Lay, Enron Calisto Tanzi, Parmalat TT Durai, NKF
Bernie Ebbers WorldCom
Ong Boon Kheng , Informatics
Allen Stanford, Stamford
Madoff, Investment
Ramalinga Raju, Satyam
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Famous Whistleblowers
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Whistleblowers such as Sherron Watkins, of Enron, have raised the ALARM against very powerful people bringing under the spotlight the fraudulent behaviors of people previously considered as business heroes such as Ken Lay from ENRON.
What is a Whistleblower?
It is a WITNESS, somebody who has observed (& sometimes participated in) suspected corruption, fraudulent or unethical activities and decides to a
make a public disclosure about it.
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Why a Whistle Blowing Policy is IMPORTANT?
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Why a Whistle Blowing Policy is IMPORTANT?
They are essentially two main reasons: 1. An organisation's own staff accounts for most of
fraud losses. 2. Tips are one of the most common way to find out
about existing internal frauds
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Why a Whistle Blowing Policy is important ?
Surveys show that an organisation's own staff accounts for 70 to 80% of fraud losses.
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How frauds are usually detected?
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Consequences of NO Whistle Blowing Policy?
In most case cases, people will keep quiet! You will not know until it is too late!
Some employees will even be compromised Some employees will make anonymous disclosures
and rumors will spread Anonymous allegations are often too incomplete to be
acted upon More risks of malicious allegations Possibility that a dissatisfied employee may contact the
media or the police directly.
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2 - Understanding why.. Practically people find to very hard to Blow the Whistle
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The Dilemma of 'would be’ Whistleblowers – A scenario
¤ Johnny Goodguy, believes in hard work, personal integrity, loyalty, and family. As a professional in a growing company, he just wants to do a good job for his employer and pursue a successful career.
But what will happen to Mr. Goodguy’s professional life if he inadvertently find out that some important transactions that have been voluntarily reported incorrectly in the financial statements? Or that some senior managers have committed illegal acts?
What should he do?
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The Dilemma of Whistleblowers
According to the Code of Conduct of his organization, Mr Goodguy should first express his concerns to the higher level of management. But what if … The Management does not want to listen or worse is involved in the misleading statements,.. What should Mr. Goodguy do then?
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The ”Painfull” Fate awaiting Whistleblowers
They are unlikely to be called heroes, but rather “traitors” or “snitches.”
They will not likely be portrayed as “team players,” but rather disloyal & disgruntled employees.
They often lose friends, lose careers opportunities, and endure significant personal stress.
While some have benefited in lucrative speaking engagements and book deals, this is the exception, NOT the rule.
The REALITY is that Employees like John Goodguy whatever they do, are in a LOOSE-LOOSE situation.
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Why most Employees will usually be reluctant to ‘blow the Whistle?’
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For current members of staff that do
blow the whistle, the
consequences are often very
painful!
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RETALIATION Against Whistleblowers
• blaming the whistleblower for the problem; • “payback” complaints against the whistleblower; • loss of opportunity for advancement; • harassment and/or victimization; • disciplinary action or dismissal; • legal action against the whistleblower, for
defamation, or breach of confidence or secrecy; • or even physical assault.
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The ”Painfull” Fate awaiting Whistleblowers
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Legal protection for Whistle Blowers
¤ Many countries have introduced whistleblower protection laws in varying scopes as part of their anti-corruption efforts.
¤ The laws are meant to encourage individuals to speak out if they find corrupt practices or improper conduct in their workplace.
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¤ It provides some protection to informers, or “whistleblowers”, in terms of confidentiality of information as well as immunity from civil and criminal action.
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Sarbanes-Oxley Act about Whistle Blowing
• Sarbanes-Oxley Section 1107 makes it a crime for anyone, with intent to retaliate, to take any action harmful to anyone for providing to law enforcement officer any truthful information relating to commission of any federal offense.
• Maximum punishment is 10 years incarceration and fine
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Legal Protec8on for Whitleblowers is NOT Enough!
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3 – Designing an Effective.. Whistle Blowing Policies & Systems to encourage whistle blowing in your organization
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Sarbanes-Oxley Act about Whistle Blowing
Sarbanes-Oxley §301, require audit committee to establish procedures for: 1. Receiving and retaining information about, and treating alleged incidents involving the issuer regarding accounting, internal accounting controls or auditing matters 2. The confidential, anonymous submission of concerns by employees about questionable accounting or auditing matters
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Barriers to Whistle Blowing Practices
According to surveys more than 50% of employees in the United States do not feel comfortable using the communication channels made available to them: Fear of Retaliation Divided and Group Loyalties Negative History & Memory Logistics issues
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Whistle Blowing Policy
You need a Whistle blowing policy & system!
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Prerequisites for whistleblowers
þ Guidance on what is right or wrong
þ Confidence that they will be protected
þ Must believe that appropriate action will be taken
þ must be aware that they can make such a disclosure and how they should go about doing so (to whom, how, what information should be provided, etc)
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The Code of Conduct Ethics
¤ The purpose of the “code of ethics” is to provide a VISIBLE Reference Point to DETER wrongdoing and to PROMOTE honest and ethical conduct.
þ Ensure compliance with applicable governmental laws, rules and regulations
þ Description of what constitutes fraudulent behavior þ Process for internal reporting of violations of the code
to an appropriate person or persons identified in the code þ Define accountability for adherence to the code and the
sanctions to be imposed on those who breach it
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Fraud Reporting Channels / Hotline
Leadership, Strategy & Oversight
Executive Management
Board of Directors
Employees
Internal desire to disclose fraud
Audit Committee
Fraud Hotline Audit
Anonymity Independence Confidential
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Culture & Fraud Risk Management
Your corporate culture to support Good and Effective FRAUD risk management practices must have integrated the following values/principles:
þ Act with Integrity and Discipline þ Be Responsible & Accountable for what they do þ Be Transparent about how they do things
Ø If it has not, Fraudulent behaviors are inevitable
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The Keys Elements of Whistle blowing Policy
þ Set and map the ways by which employees can make their concerns known about suspected fraud or corruption
þ Outlines how the organization will deal with such instances.
þ Ensure independent & Confidential investigation proceedings
þ Need to protect those people who raise concerns þ Zero tolerance to fraud and corruption with tough
enforcement on policy. þ It also should be linked to commitment to the
development of a culture of honesty þ Develop a clear code of code of conducts & Ethics
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In Summary, the Keys Elements of Whistle blowing Policy are..
Code of conduct & ethics
Proper investigation Procedures
Protection of Whistle Blower
Current Profile Best Practice
10 8 6 4 2 0
Risk Aware Culture
Tough Enforcement
Reporting procedures
Independent Investigation
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Marc Ronez -‐ Chief Risk Strategist & Knowledge Leader at ARiMI -‐ Asia Risk Management Ins8tute
An ERM & Governance expert with 20 years of experience both as a practitioner & trainer for large MNCs, Governments & Charities. Marc has an MBA from the University of Chicago GSB, an MSc in Insurance & a LLM from the University of La Sorbonne
What do I do? Help managers & leaders to use Risk Management to:
þ Resolve difficult operational and business challenges þ Take & manage risks effectively to build sustainable & profitable growth models
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Marc’s specific areas of expertise include ERM, risk decision-making processes, corporate governance, Business Ethics, Social Responsibility, risk-aware culture, risk communication and crisis management, business model/Strategy Risk Management, corporate learning systems development.
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Risk Management is a con/nuous journey, not a des/na/on!
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Marc Ronez is on Linked in & WordPress
You can find his profile & read his blogs at: P: sg.linkedin.com/pub/marc-ronez/1/3b6/465/ B: theriskmanagementparadox.com B: riskmanagementdemystified.com
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ARiMI – Asia Risk Management Ins8tute
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ARiMI is an applied research and business studies ins0tute that was set up in 2003 (in partnership with NUS) and has established itself as the Ins0tute of Reference for Enterprise Risk Management studies in Singapore and in the region.
We FOCUS on programs:
1. For Decision-‐Makers (Middle to Top Management): Developing PRACTICAL Knowledge & Skills in Risk & Crisis Management
2. For Organiza8ons: Building CAPABILITIES for Sustainable and Profitable Growth by EMBEDDING Risk Aware & Crisis Readiness Culture
ARiMI, Asia Risk Management Ins8tute
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ARiMI -‐ Focus and Exper8se
● Crisis management & Business Continuity
● Leadership risk decision-
making and Social Capital ● Reputational Risk &
stakeholders management ● Corporate governance &
business ethics ● Business Innovation &
Corporate Transformation
Research
● Professional Designation Programs
CERM (Certified Enterprise Risk Manager), CPRM (Certified Professional Risk Manager), ARM (Associate in Risk Management), FSRM (Fellow in Strategic Risk Management)
● Public Seminars and
Workshops ● Corporate Training &
learning Programs
Education
● Risks & Opportunities Assessment & Mapping
● Crisis & Business
Continuity Mgt ● Reputation Risk Mgt & CSR
● Business Ethics & Fraud
Risk Mgt ● Risk Appetite & Risk Aware
Culture Readiness ● Project risk management ● ERM Implementation Innovation & Change Mgt
Expertise
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For more information on ARiMI,
check our website at: www.arimi.org
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Developing Effective Leaders & Decision-makers for complex & volatile times
Important Note: Please note that that this presentation and its contents, is the intellectual property of the Asia Risk Management Institute Pte Ltd. It has been prepared for this ASLI IA Conference 2013 session and it cannot be used for any other purposes without the specific written consent of the Asia Risk Management Institute.
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