Why We Need Whistleblowers in Organizations

What Qualifies Someone as a Whistleblower?

The term “whistleblower” carries many connotations with it, and in the eyes of some, it has even earned itself a bad reputation. However, whistleblowers are essential to the functioning and safety of an organization and they have the legal right to protections. A whistleblower is an individual, typically an employee, who exposes information or activity within an organization that is deemed illegal, illicit, unsafe, fraud, a waste, or an abuse of taxpayer funds. Almost anyone with evidence of fraud or misconduct can become a whistleblower, so they do not need to be a current or former employee of the organization engaging in misconduct.

There are two main types of whistleblowing that can occur within a company: internal whistleblowing and external whistleblowing. An individual who reports suspected misconduct to a leader in the workplace is considered an internal whistleblower. External whistleblowing refers to an individual who observes misconduct and reports it to someone outside of the organization. Contrary to what some organization leaders might believe, whistleblowers can be essential in helping an organization function, especially if structures are put into place where they can report misconducts internally and be heard.

If you are operating any kind of business, you want your employees to be in a safe space and to feel protected in the case of wrongdoing by other employees. Creating a “whistleblower-friendly” environment means employees know they are part of an organization that holds its members accountable for their actions. No matter how minor or serious the concerns might be, having a transparent business will serve you well in the long run.

How Whistleblowers Can Prevent and Report Fraud in the Workplace

If there is corporate fraud or misconduct going on within your organization, whistleblowers can be a lifesaver. In fact, according to research from the Nations on Occupational Fraud and Abuse, over 35% of fraud cases are reported by whistleblowers. Types of fraudulent schemes that whistleblowers in the workplace can help halt include:

  • Payroll fraud

Payroll fraud can be committed by both regular employees and managers within your organization. If employees are committing payroll fraud, it means they are manipulating the system to receive payments they have not earned. If managers are committing payroll fraud, it means they are withholding payment of rightfully earned wages or taxes for those wages. Neither will help your organization thrive and both can hurt it tremendously.

It can be difficult to find exact numbers on this issue, but a study conducted by the Economic Policy Institute found that 2.4 million workers lose approximately $8 billion annually to minimum wage violations. If you applied these numbers to the broader picture of workers in the U.S., it would suggest that workers lose more than $15 billion per year to minimum wage violations. Whistleblowers can help you establish your reputation as a trustworthy and dependable company that pays its fair dues and help you avoid overpaying workers at the same time.

  • Asset misappropriation

Asset misappropriation, also known as insider fraud, occurs when the individuals who were entrusted to manage the assets of an organization steal from it. They use their position of power to steal from the organization through fraudulent activity. A common example of asset misappropriation is submitting invoices for fictitious, inflated, or personal purchases. If a whistleblower in your organization notices these wrongdoings, they can stop them in their tracks and prevent you from acquiring unnecessary and frivolous expenses.

  • Financial statement fraud

As the name suggests, financial statement fraud is the act of committing perjury on financial statements, such as balance sheets, income statements, and cash-flow statements, in order to intentionally mislead for personal gain. Those who commit this fraudulent scheme might be trying to save their reputation or the reputation of the business, but this does not make it legal or conducive to long-term success, and whistleblowers can help call these actions out.

  • Data theft

With the workplace gravitating towards a digital realm, more and more companies have loads of sensitive information at their fingertips. This makes it more important than ever to have employees you can trust. Unfortunately, theft of data and intellectual property is quite common, particularly for departing employees. In late 2019, Infosecurity Magazine reported that 72% of departing employees admitted to taking company data, and 70% of intellectual property theft occurs within 90 days before an employee’s resignation announcement. While an organization might not be able to terminate employees who are already on their way out the door, they can file a lawsuit against the responsible party under the Computer Fraud and Abuse Act, and it might take a whistleblower to have the evidence to do so.

  • Insurance and banking fraud

It is common for workplaces to offer health insurance and other benefits to their employees. These are usually put to good use, but sometimes, employees have been found to file false claims or lie about illnesses. This creates higher premiums and more out-of-pocket expenses for the organization than necessary. The Coalition Against Insurance Fraud (CAIF) estimates that workers’ compensation insurance fraud alone costs insurers and employers $6 billion a year. As much as you might like to have insight into the day-to-day of your employees’ lives, it can be difficult to oversee everything, and whistleblowers might be able to shed some light on some shady acts in this area.

  • Bribery

In business, a bribe occurs when a representative gives money or financial considerations to another in order to sway business decisions. Workers might give bribes to buyers, partners, suppliers, or other important decision makers. Bribery is not only considered illegal, but it is usually a felony punishable by a state prison term of one year or more. Needless to say, the risk is not worth the gain. If a whistleblower takes note of bribery going on in the company, they can help put a stop to it before matters escalate.

Why Whistleblowers Need Protection

In an organization, the average employee does not set out to become a whistleblower. If you hire an employee who reports wrongdoing in the workplace, it means you have done your due diligence in keeping enough trustworthy individuals on your side to protect your organization. Whistleblowing is no easy task, and these workers should be protected in return. They have the rare opportunity to witness wrongdoings in an organization before the general public. The key is to have a reporting structure in place where they feel safe and protected to come forward with the information.

If this kind of reporting structure is not in place, an internal whistleblower who would normally report wrongdoing to another leader can become an external whistleblower. This is when wrongdoings in the workplace can begin to hurt an organization’s reputation. However, external whistleblowers are still important and can actually prevent larger payouts and lawsuits down the line. If negative behavior in the workplace is brought to light and the leaders take direct action, it can demonstrate a sense of accountability and willingness to improve, two factors that are beneficial for employee retention and satisfaction.

The Occupational Safety and Health Act of 1970 (OSHA) has a Whistleblower Protection Program that enforces the whistleblower provisions of more than 20 whistleblower statues protecting employees from retaliation for reporting violations of workplace safety and health, airline, commercial motor carrier, consumer product, environmental, financial reform, food safety, health insurance reform, motor vehicle safety, nuclear, pipeline, public transportation agency, railroad, maritime, securities, tax, antitrust, and anti-money laundering laws and for engaging in other related protected activities. The whistleblower lawyers at Shellist Lazarz Slobin LLP are here to help enforce these protections in order to keep whistleblowing a safe and valuable act of bravery.

If you need an experienced whistleblower lawyer or want to learn more about employment law, call Shellist Lazarz Slobin LLP at (713) 352-3433 or contact us online.

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