Auditors blow whistle on inadequate procedures for reporting crises

February 27, 2014 Leave a comment

February 23, 2014 12:35 pm

Auditors blow whistle on inadequate procedures for reporting crises

By Brian Groom, Business and Employment Editor

Up to a third of employers have inadequate whistleblowing procedures, threatening their ability to prevent future corporate crises, their own heads of internal audit have warned.

A survey by the Chartered Institute of Internal Auditors, whose members advise boards on the effectiveness of controls to manage risks, found that only 69 per cent said their organisation’s whistleblowing arrangements were effective.

More than nine out of 10 had whistleblowing arrangements in place. But in more than half of organisations, people responsible for handling calls from whistleblowers received no training in how to do so. Nearly half of respondents said their organisation provided no feedback or progress updates to whistleblowers.

Michael Woodford, the former chief executive who exposed wrongdoing at Olympus, warned that recent scandals had revealed a “dangerous culture of silence” within companies.

The institute said boards must do more to ensure the policies they put in place to enable whistleblowers to come forward were working effectively.

It said the findings, published in a report, suggested the effectiveness of whistleblowing procedures in many organisations could be significantly improved and the confidence of staff members reporting information enhanced.

It surveyed heads of audit at 137 organisations, including 99 in the private sector.

Internal auditors advise on the management of risks including fraud, data security and health and safety. They aim to help the board and management identify issues before they become a problem.

The institute said lack of a clear and properly resourced whistleblowing strategy, left businesses vulnerable to risks ranging from accounting fraud and corruption to negligent safety practices and workplace bullying, which could cause serious financial and reputational damage.

It said recent reports and statistics suggested the incidence of whistleblowing was increasing, particularly in financial services and the health and social care sector, and particularly since the introduction of the Bribery Act in 2010.

Ian Peters, the institute’s chief executive, said whistleblowing arrangements played a crucial role in any organisation’s system of internal controls but particularly in large organisations, helping them to reduce the risks of serious problems causing financial loss or exposing the organisation to regulatory or legal action.

“But the arrangements must function correctly,” he added. “This is why, for example, the UK corporate governance code states that boards of listed companies should ensure these arrangements are properly planned and properly implemented.”

He said: “Despite a number of poorly managed whistleblowing cases causing huge damage to large organisations in both the public and private sectors in recent times, it is worrying that a very significant minority of heads of internal audit are sceptical about the adequacy of whistleblowing arrangements in their organisations. This is something that boards should be asking questions about.”

Mr Woodford said: “From my perspective, the recent scandals and tragedies which have unfolded across a range of sectors, and have so appalled the public, revealed a dangerous culture of silence. Therefore, strengthening the role of internal auditors can only be beneficial.”

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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