Unethical or illegal conduct in business and public institutions can have disastrous consequences for the public interest, but also for organisations themselves. Think of the case of Wirecard, the multi-national financial company headquartered in Germany that collapsed in 2020 after €1.9 billion in its balance sheet could not be accounted for.
Effective internal whistleblowing systems can help organisations to avoid dire consequences, such as fatalities and environmental damage, and their repercussions for business and the public purse. Indeed, whistleblowing is one of the most effective ways to uncover corruption, fraud, mismanagement and other wrongdoing. Moreover, organisations are often best placed to deal with wrongdoing occurring within their remit.
Speak up and listen up with effective Internal Whistleblowing Systems (IWS)
Also known as “speak up” or internal reporting systems, IWS encourage employees and stakeholders to raise concerns internally about potential misconduct. They provide safe channels to receive reports, protect those reporting concerns from retaliation and guide an organisation’s response. It is important that organisations’ leaders nurture internal environments conducive to speaking up. This can avert harmful consequences and bring real financial and cultural benefits to their organisations.
Effective IWS are powerful risk management and prevention tools which help protect organisations from the effects of misconduct – including legal liability, lasting reputational harm and serious financial losses. By enabling personnel and other relevant stakeholders to speak up about unethical or illegal conduct, these systems foster an organisational culture of trust, transparency, and accountability. They, therefore, provide real benefits to an organisation’s culture, brand, value creation and growth.
Whistleblowers support early detection mechanisms
Looking into 2,110 real cases of occupational fraud in 133 countries, the Association of Certified Fraud Examiners (ACFE) found that 42 per cent of fraudulent activities were detected by tips, which is nearly three times as many as the next common method, internal audits. More than half of all tips came from employees, and 10 per cent from vendors, who can all be regarded as whistleblowers.
How is occupational fraud initially detected?
Who reports occupational fraud?
Source: ACFE, Occupational Fraud 2022 – A Report to the Nations
The ACFE also found that maintaining a reporting mechanism increases the chances of earlier fraud detection (12 months with versus 18 months without) and reduces losses by half.
A legal obligation and an opportunity
Acknowledging the various benefits of having effective IWS, an increasing number of national laws now require organisations to implement internal whistleblowing systems. Public entities in the European Union (EU) must implement IWS since December 2021, and medium and large companies will rapidly have to catch up as the EU Directive on Whistleblower Protection is transposed.
However, organisations should not consider the adoption of IWS as a mere box-ticking exercise to meet their legal obligations. In order for the IWS to fulfill its objectives of empowering employees to speak up internally and benefit organisations, the systems have to be truly effective. By allowing whistleblowers to report directly to competent external authorities, or to make public disclosure in certain circumstances, the EU Directive sought to create additional strong incentives for organisations to take their internal whistleblowing systems seriously.
In practice, most whistleblowers first report suspicions of wrongdoing within their organisation. However, if they do not trust the effectiveness of their IWS, potential whistleblowers will stay silent, leaving organisations unaware of wrongdoing that can harm them; or they will turn directly to the authorities or even go to the public, not giving organisations a chance to correct wrongdoing themselves.
Transparency International’s new tool for public and private organisations
Experience has shown that to be effective, internal whistleblowing systems should follow certain standards. These are detailed in Transparency International’s new tool, Internal Whistleblowing Systems – Best practice principles for public and private organisations.
These best practice principles take into account lessons learned from the implementation of systems across the globe and were shaped with inputs of experts from Transparency International, other civil society organisations and academia.
These principles apply to organisations across all sectors – public, private and “third” sectors – and across all jurisdictions – including international organisations such as the United Nations.
As the IWS best practice principles meet, at a minimum, the standards set in the EU Directive on Whistleblower Protection, they can also be used by organisations operating within the EU to meet their obligations under EU law. The principles also take into account the International Organization for Standardization (ISO) Guidelines for Whistleblowing Management Systems.
A truly effective IWS can be a game-changer for any company or organisation. It’s time for internal whistleblowers to be recognised as assets and for companies to see the implementation of IWS as an opportunity.
Transparency International’s new tool: Internal Whistleblowing Systems – Best practice principles for public and private organisations was produced as part of the Speak Up Europe project.