Worldcom The Story Of A Whistle Blower Essay Example

says that “A survey of more than 5,000 nurses found 78% feared personal reprisals or a negative effect on their career if they reported concerns to their employers. It also found that 21% had been discouraged or told not to report concerns about what was going on in their workplace. It also states that the Royal College of Nursing has set up a whistle-blowers’ hotline after having the evidences of members being victimised for voicing worries about NHS words’ unsafe practices. So it is clear that we sometimes do need to have outsiders’ help to solve our inside problems. But for the system or the hotline process to be effective there should be some key criteria or standards. In an article called “Best Practices in Whistleblower

System” in Fulcrum Inquiry website on November 2005 it says, according to AICPA recommendation some important attributes of effective whistle-blower hotline solution should be as follows: It should be operated by an independent third party. Employees or others who are willing to submit a complaint are more comfortable to do so if it is well known in the public that the system is operated independently. Instead of only fully automated systems, such as internet reporting, voice mail, etc. he system should have well trained interviewers available to handle complaints. It should have phone number solely for taking complaint, and also should accept complaints using fax, website, email address, and regular mail. And it should be available 24 hours a day though out the year. To provide support to complainants who are from different ethnic backgrounds or different countries, the solution should have multilingual capability.

Complainants should have

a way of either calling back later, or providing responses to investigators’ follow-up questions. The solution should have protocols for distribution of each type of complaint to appropriate individuals within the company based on the nature of the complaint. Complaints involving senior management are automatically directed to the Audit Committee without filtering by management or other internal personnel.

The existence of the system should be made known to employees, vendors, and other stakeholders in public documents, as well as in standard communications to each group. According to another article called “Practical Solutions for Dealing with Whistleblowers” by David A. Selden, 2004, “One key to an effective hotline program is the ability to effectively receive, and quickly respond to, employee complaints. Enron whistle-blower Sharon Watkins recently stated that Enron's lack of response to her concerns ultimately led her to seek help from the media.

Disadvantages: Some disadvantages of outside vendor hotline system can be the followings: “Outside vendor hotline system includes the risk that the attorney-client privilege will not apply to the investigation. Information sent to an outside vendor is discoverable and could be a "smoking gun”. ” (David A. Selden, 2004) “The company cannot control the behaviour of the vendor in the event of a subpoena or government investigation, and the company may be liable in the event of errors by the outside vendor, which generally is less amiliar with the company's business. ” (David A. Selden, 2004) “Smaller companies may lack the bargaining leverage to obtain indemnity provisions in their contracts with the outside vendor. ” (David A. Selden, 2004) Despite these disadvantages, I think this system is one of the most

useful means of fighting fraud because “According to the ACFE's 2004 Report to the Nation on Occupational Fraud and Abuse, fraud losses are reduced by nearly 60 percent when a hotline is present. ” (Slovin. D, June 2006, Internal Auditor, P. 1)

Question 2 Discuss the effectiveness of regulatory reforms, such as the Sarbanes? Oxley Act of 2002, in preventing and deterring financial reporting fraud and other unethical actions. Discuss whether you believe the solution for preventing and deterring such acts is more effective through regulation and other legal reforms or through teaching and instruction about moral and ethical values conducted through avenues outside legislation, e. g. n school, at home, places of worship, etc.

After experiencing several financial scandals or other malpractices within the corporate world all over the world, governments of many different regions had to come up with new regulatory reforms to tighten things up. The accounting fraud in WorldCom followed by similar scandals at Enron, Global Crossing, Tyco etc. and resulting losses to stockholders resulted in a set of far-reaching regulatory reforms passed by Congress in 2002 and Sarbanes-Oxley Act of 2002 is one of them.

Sarbanes-Oxley Act has definitely got the potentials and is effective to reduce financial and accounting fraud because of some new and improved range of regulations, such as- “The Sarbanes-Oxley Act requires all public companies to establish procedures for (1) the "receipt, retention and treatment" of employee complaints on internal accounting controls and auditing practices, and (2) the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Most companies must have such procedures in place by October 31, 2004, at

the latest” (David A. Seldem, 2004, Practical Solutions for Dealing with Whistle-blowers)

“Public companies are required by Section 301(4) of the Sarbanes Oxley Act to have a whistleblower system. However, these systems are also valuable for private companies. ” (Fulcrum Inquiry, November 2005, Best Practices in Whistle-Blower System) Once auditors from PWC told insurer AIG its credit valuations were off and would require a substantial write down. According to Sarbanes-Oxley, AIG required to disclose this negative information to the public.

So, the public was informed, and shareholders were protected. (ITBusinessEdge, 2008, Sarbanes-Oxley Success Story) Despite of having these regulatory reforms, cases of high profile frauds are still being found. In 2005 AIG faced a lawsuit filed against it for being involved in couple of fake insurance transactions which showed that the company had larger reserves for claims. After further investigation it was proved that this indeed was the case and in 2006 AIG agreed to pay more than 1. 6 Billion dollars for the charges related to accounting abuses.

Another example of accounting fraud is the collapse of Refco lnc in 2005. Four years prior to its initial public offering in 2005, the financial statements had been showing big profit margins for the company. “Auditors discovered $430 million in losses from the mid-1990s onward; Phillip Bennett, CEO of the company, allegedly concealed the losses from his auditors, investors and Thomas H. Lee Partners, which had purchased a majority interest in Refco in August 2004; the losses were assumed by a company Bennett controlled, in an elaborate transfer scheme.

Investors purportedly lost $2. 4 billion in the collapse. ” (Westheimer D. 2008, Accounting

Fraud, Security Fraud,) An Italian dairy and Food Company called “Parmalat SpA” went bankrupt in 2003 making it one of the biggest bankruptcies of Europe. “It had been using its assets to offset more than a decade's worth of liabilities through a network of offshore and foreign finance companies. The problem, however, was that these assets did not exist” (Morgan O’Rouke, March 2004, Parmalat scandal highlights Fraud Concerns).

Above mentioned scandals shows that although they are partially successful but these regulatory forms cannot refrain people fully from doing fraudulent activities. So, they haven’t been proved to be that effective as authorities thought them to be. As we can see that only regulatory forms cannot completely stop these fraudulent activities, perhaps teaching and instruction about moral and ethical values conducted through avenues outside legislation, e. g. in school, at home, places of worship, etc. is a good idea to increase the ethical value and morality among people.

Otherwise, people will always find the opportunity to commit crimes no matter how strict the regulation is because these regulations cannot cover policies regarding every key issues. So, people will always find loop holes in the regulations and it is their ethical values which will prevent them from doing wrong given an opportunity. People need to be taught that they need to stand up for what’s right even if it means taking the harder road So we should have a mix of strict regulation and teaching of morality and ethics to avoid these kinds of fraudulent activities.

Bibliography

http://www.wbde.org/documents/Whistleblowing_in_Aust_Public_Sector-Oct2007.pdf

http://library.findlaw.com/2004/Oct/27/133611.html#_ftnref2

http://www.guardian.co.uk/society/2009/may/10/nhs-nurses-hotline-bad-practice