1. 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
2. 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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3. 1 - Understanding what is..
a Whistle Blower and the Need for
more effective Whistle Blowing
Policies & Systems
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4. 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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5. 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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7. 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.
8. 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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9. 9
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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12. How frauds are usually detected?
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13. 13
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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14. 2 - Understanding why..
Practically people find to very hard to
Blow the Whistle
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15. 15
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!
19. 19
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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20. The ”Painfull” Fate awaiting Whistleblowers
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21. 21
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.
22. 22
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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23. Legal
Protec8on
for
Whitleblowers
is
NOT
Enough!
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24. 3 – Designing an Effective..
Whistle Blowing Policies & Systems to
encourage whistle blowing in your
organization
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25. 25
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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27. Whistle Blowing Policy
You need a Whistle
blowing policy & system!
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28. 28
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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31. 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
1
0
8
6
4
2
0
Risk
Aware
Culture
Tough
Enforcement
Reporting
procedures
Independent
Investigation
Whistle Blowing System – MARC RONEZ - Copyright @ ARiMI 2013
34. 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
Whistle Blowing System – MARC RONEZ - Copyright @ ARiMI 2013
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.
34
35. Risk
Management
is
a
con/nuous
journey,
not
a
des/na/on!
Whistle Blowing System – MARC RONEZ - Copyright @ ARiMI 2013
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
35
36. ARiMI
–
Asia
Risk
Management
Ins8tute
Whistle Blowing System – MARC RONEZ - Copyright @ ARiMI 2013 36
37. 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
Whistle Blowing System – MARC RONEZ - Copyright @ ARiMI 2013 37
38.
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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39. 39
For more information on ARiMI,
check our website at:
www.arimi.org
Whistle Blowing System – MARC RONEZ - Copyright @ ARiMI 2013
Developing Effective Leaders & Decision-
makers for complex & volatile times
40. 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.
40Whistle Blowing System – MARC RONEZ - Copyright @ ARiMI 2013