Awhistleblower is generally defined as an employee who discloses potentially damaging information about their employer to an authority figure, such as their boss, the media, or a government official.
Employees who have sought to "blow the whistle" on their employer's unethical or illegal activities have discovered just how difficult whistleblowing really is. Cynthia Cooper, the former vice-president of internal audit at WorldCom, can tell you. In a room so silent you could hear a pin drop. I sat with hundreds of other accounting professionals as she spoke of her experience following her decision to go public with information on the WorldCom fraud. Her decision involved many conflicting emotions that pitted personal and organizational loyalties against what she knew to be "the right thing to do." She even followed all the conventional wisdom and made every attempt to resolve the problematic issues through available internal procedures prior to going public.
According to the Association of Certified Fraud Examiners' (ACFE) 2004 National Fraud Survey, tips from various sources (e.g., employees, vendors, customers, and anonymous) are the most common method for detecting fraud. In response to the many large corporate scandals. Congress passed the Sarbanes-Oxley Act (SOX), which sought to encourage employees and others to report unethical or illegal activities and to ensure protection for those individuals.
To that end, SOX requires that audit committees establish procedures, such as a hotline, for receiving and handling complaints and anonymous employee tips regarding questionable company accounting methods, internal controls, or auditing matters. An anonymous reporting mechanism also aids in compliance with the updated Federal Sentencing Guidelines and the New York Stock Exchange regulations. This type of procedure provides a low-risk way for whistleblowers to report fraud or other illegal activities.
Sarbanes-Oxley Act Provisions
SOX sections 806 and 1107 established new protections for corporate whistleblowers. Civil liability protection under section 806 made it illegal to retaliate against an employee of a publicly traded company for providing information regarding securities fraud or violation of SEC rules to a federal regulatory or law-enforcement agency, a member or committee of Congress, or a supervisor. Penalties for violating section 806 include compensatory damages to "make the employee whole," such as reinstatement, back pay with interest, and litigation costs.
SOX section 1107 establishes criminal penalties for anyone retaliating against a whistleblovver who has provided information to a law-enforcement officer regarding the commission, or possible commission, of any federal offense. …