A Brief Overview of Federal and State Protections
Over the course of their careers, a sizable percentage of accountants and other finance professionals will experience one or more instances in which their employers ask them to do something that might raise ethical or legal concerns.
These situations, which often come up unexpectedly, are as varied as the businesses in which they arise. For example, the CFO of a finance company might instruct an employee to lower an estimate of loan losses because the current figure could scare off a prospective buyer. While interfacing with external auditors, the CEO might question whether it is necessary to disclose to the auditors what is known about the rapidly declining value of an investment. Or, a sales department head might insist on using some of next quarter's sales - backed up only by letters of intent - to boost this quarter's lagging sales figures. Employees who refuse to engage in such behavior may be told they are not team players and could face repercussions from management.
In such a situation, there are essentially three courses of action; employees can: 1) give in and do what their employer or their employer's client wants them to do; 2) resign from the company; or 3) insist on doing the right thing - comply with accounting rules, refuse to engage in fraud or inaccurate reporting of data, and report the problem up the chain of command until someone listens.
Each case is unique, with differing regulations that advise employees how to act The laws or regulations applicable to a company may require an employee to report such concerns or findings up the chain of command, or the employee may feel the need to speak up as a matter of professional responsibility. As lawyers who have represented finance professionals in the very situations described above (and many others like them), the authors can affirm that those choosing the third option of "blowing the whistle" on accounting fraud can launch employees on a rough but rapid road down the corporate ladder and out the door. This possibility is widely known and contributes to the reluctance among most employees to oppose accounting fraud or other such unlawful activity.
What is less commonly known is that federal and state laws provide strong protections for employees in many such instances, and that accountants and other finance professionals can use these laws to achieve favorable outcomes when they fall victim to an employer's retaliation. The purpose of this article is to give accountants some of the information they need to know before blowing the whistle on financial wrongdoing.
Laws Protecting Whistieblowere
Most accountants are familiar with the Sarbanes-Oxley Act of 2002 (SOX), which Congress passed in the wake of the accounting scandals at Enron and WorldCom. SOX requires publicly traded companies to make certifications about their financial conditions and imposes stiff penalties on companies for misrepresenting their finances to shareholders. SOX also contains protections for accountants and other finance employees who face retaliation for providing information about, or participating in investigations relating to, what they reasonably believe to be violations of securities laws on the part of their publicly traded employers.
But SOX is not the only federal law that protects accountants who blow the whistle on financial wrongdoing. Some federal laws protect finance professionals in specific industries. Under the Federal Credit Union Act, for example, a federally insured credit union cannot fire an employee for reporting a possible violation of any law or regulation internally or externally, and any employee so terminated can sue to recover back pay and additional damages. Other laws focus on certain types of transactions. The False Claims Act, which broadly prohibits fraud on the federal government by its contractors, makes it unlawful for a contractor to retaliate against an employee for complaining about such fraud. …