CORPORATE malfeasance in organisations has taken centre-stage in recent months. News of misconduct, questionable corporate practices and irresponsible financial reporting have been appearing in the newspaper from time to time.

In the light of these negative developments, public sentiment inevitably dips and questions of ethics and the existence, or absence, of proper management practices in organisations naturally make the rounds.

As customers rely on financial institutions for safety, OCBC Bank has taken steps to strengthen its internal controls to effectively mitigate the risks of fraudulent practices.

In implementing its Whistleblowing Programme, OCBC hopes to promote a strong internal control that encourages employees to report any suspicions of fraud or misconduct without fear of reprisals.

What is whistleblowing?

Whistleblowing goes as far back as 1863. It was enacted as a 'watchdog' over federal government expenditures for the American Civil War. The law made war profiteers pay heavily for defrauding the government, while at the same time incentivising the reporting of such activities by people who came to be known as 'whistleblowers'.

In today's context, whistleblowing has been used to describe incidents where an employee raises alleged misconduct within an organisation to the management.

The whistleblowing channel can be viewed as an alternative escalation route when the normal communication protocols are deemed inadequate by the employees in affording confidentiality and protection.

Ideas about whistleblowing vary widely. Some see whistleblowers as selfless martyrs protecting public interest and organisational accountability. Others view them as 'snitches' solely pursuing personal glory and fame.

Persecution of whistleblowers has become a serious issue in many parts of the world. Although whistleblowers are often protected by law from employer retaliation, there have been many cases where punishment for whistleblowing has occurred.

An effective whistleblowing system is increasingly viewed as an integral element of an organisation's complex internal control framework and corporate governance system, where it is impossible for the board or senior management to know everything that is going on.

Corporate governance is the set of policies and processes laid out by an organisation?s management team that affect the way the organisation is controlled and run.

Internal controls, in turn, are the processes and monitoring activities that help to ensure that the goals of corporate governance are met.

Whistleblowing thus comes under the umbrella of an organisation's internal control and serves as an additional tool to help organisations detect and prevent improper activities.

How effective is whistleblowing?

The Association of Certified Fraud Examiners conducted a survey in 2004, which sought to identify the most effective detection methods of fraudulent activities. Results showed that 39 per cent of cases were discovered through tips.

KPMG's Fraud Survey Report 2004 mentioned that 'most respondents discovered fraud through informants 53 per cent of the time' and that 'the findings highlight the importance of implementing a well-defined and independent channel for whistleblowing'.

Six keys for an effective whistleblowing programme

1. Commitment from senior management Senior management sets the tone for the organisation when it comes to corporate governance. They must infuse the ethos of integrity and fair-dealing into the corporate culture and communicate effectively to employees a zero tolerance stand regarding misconduct.

With the appropriate 'tone at the top' and the strong emphasis on ethical behaviour, employees will understand senior management's commitment and be more forthcoming in reporting suspected cases of misconduct.

2. Independent investigation
All reports have to be investigated, whether they are anonymous or not, by an independent party.

3. Protection programme
The whistleblower's interest has to be protected to ensure that he is not personally disadvantaged by having made the report. He must be given the right of appeal to the audit committee.

4. Confidentiality
The identities of the whistleblower and the employee under investigation and the information provided must be preserved and held in the strictest confidence.

5. Communication
The whistleblower must be kept informed of the status and outcome of the investigations.

6. Fairness
Employees under investigation should be treated with fairness and have their rights protected.

Whistleblowing serves as a major deterrent of corporate fraud. It is the organisation?s 'eyes and ears', transcending all levels, departments and divisions. It is beneficial because it motivates employees to take ownership and be committed to protecting their organisation against acts of misconduct.

The value of an effective whistleblowing programme includes:

• the observance of the highest standards of personal and corporate integrity;
• effective compliance with the relevant laws;
• a healthier work environment; and
• improved morale within the organisation.

For any benefit to be derived from an effective whistleblowing programme, a strong sense of corporate responsibility must first be cultivated and woven into the corporate culture. The rewards that organisations can reap from such a programme will likely overcome the cost of its implementation.

Article contributed by Louise Lim, head of quality assurance, group risk management, OCBC Bank.

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