Overview
The Sarbanes-Oxley Act significantly expands
existing federal whistleblower protection laws, and
public companies would be well advised to pay
special attention to these new protections for
corporate whistleblowers. Section 806 of the Act
prohibits an employer from engaging in retaliation or
discrimination against employees who report
suspected accounting or financial fraud, and
establishes a new system by which aggrieved
employees can bring an action for damages against
their employer before the Department of Labor or in
federal District Court.
The whistleblower provisions are an integral part of
the new law. Many of the questionable accounting
practices that gave rise to the Sarbanes-Oxley Act
came to light, at least in part, as a result of employees
who blew the whistle. Even before the scandals at
Enron and other companies broke, Congress had
embraced the policy of whistleblower protection as a
means to help federal regulators ferret out violations
and wrongdoing. In fact, the whistleblower
provisions of the Sarbanes-Oxley Act are patterned
after similar statutory schemes for protecting workers
in the airline and nuclear power industries.1
Experience has shown that whistleblower cases
can inflict serious damage on a company's
reputation as well as on the careers of accused
managers. Accordingly, companies should
consider taking a strategic approach to
implementing the new whistleblower provisions.
Below we summarize the key provisions and offer
some suggestions for employers.
Whistleblower Provisions of
Sarbanes-Oxley Act
Prohibition of Discrimination. Section 806 of the
Act establishes a system for whistleblower protection
for employees of publicly traded companies. That
provisio...
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... Department of
Labor and other agencies. We have directly assisted
employers in developing effective programs and
processes to help prevent discrimination claims.
Please contact us if you would like additional
information or assistance with implementation of the
whistleblower protection provisions of the Sarbanes-
Oxley Act.
1 The Wendell H. Ford Aviation Investment and Reform Act
for the 21st Century (commonly known as Air 21) protects
whistleblowers in the airline industry. A precursor to that
legislation was Section 211 of the Energy Reorganization
Act, originally enacted in 1978, which protects employees in
the nuclear power industry from retaliation for reporting
safety concerns.
2 These are essentially the same legal standards that govern
whistleblower complaints by nuclear industry employees under
Section 211 of the Energy Reorganization Act.
The Sarbanes-Oxley Act of 2002 (SOX) was named after Senator Paul Sarbanes and Michael Oxley. The Act has 11 titles and there are about six areas that are considered very important. (Sox, 2006) The Sarbanes-Oxley Act of 2002 made publicly traded United States companies create internal controls. The SOX act is mandatory, all companies must comply. These controls maybe costly, but they have indentified areas within companies that need to be protected. It also showed some companies areas that had unnecessary repeated practices. It has given investors a sense of confidence in companies that have complied with the SOX act.
The Sarbanes-Oxley Act was drafted to encourage and protect whistleblowers from retaliation after the fraud scandal that cause the collapse of Enron in 2001. In a 2010 Senate Report found that “external auditors detected only 4.1 percent of uncovered fraud schemes, “whistleblower tips detected 54.1% of uncovered fraud schemes in public companies” and were thirteen times more effective than external audits” (Turpan, 2016). Whistleblowers serve an important service to the public and are more effective than external audits. The CFAA has been used to by employers to retaliate against employees who act as informants for agencies like Internal Revenue Service or Security Exchange Commission to expose fraud. There employees, not to their financial gain, gather information as evidence of fraud by the company. With a broad interpretation of CFAA, the employee would "exceed their authority" and was "unauthorized" to access the information, therefore allowing the company to hide their illegal
A possible flaw of Sarbanes-Oxley is it failed to put up any resistance in thwarting the financial crisis. While the degree to which fraudulent behavior can be traced to the roots of the Great Panic of 2007 will likely be up for eternal debate, it might be telling that Sarbanes-Oxley effectively did nothing. It seems this could indicate that stronger incentives for whistleblowers (such as Dodd-Frank and perhaps other whistleblower protection regimes) are very necessary given the extreme social costs. This conclusion may be hasty, however, given the short time period between the enactment of Sarbanes-Oxley and the crash. Not only is the status of Sarbanes-Oxley still in flux over a decade later, but one has to consider the substantial learning and switching costs associated with a regime with such a substantial ruach. Certainly, this is not to say that additional protections may in fact be necessary given the putative reluctance of lawyers to report fraud, but Sarbanes-Oxley likely needed more time to really crystalize and provide some level of predictability before it can be declared a bust.
The recent, dramatic increase in the number of EEOC complaints charging employers with illegal discrimination has forced employers to realize that they are exposed to increasing amounts of liability -- including punitive damages -- for remarks and conduct of their managers and employees. This increased liability reinforces the importance of effectively handling and responding to a charge of discrimination filed with the EEOC. By properly handling the charge at its early stages, an employer can reduce significantly, or possibly eliminate, potential liability.
The Dodd-Frank Wall Street Reform and Consumer Protection Act brought the most significant changes to financial regulation in the United States since the reform that followed the Great Depression. It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation’s financial services industry. Like Glass-Steagall, the legislation passed after the Great Depression, it sought to regulate the financial markets and make another economic crisis less likely. Banks were deregulated in 1999 by the Gramm-Leach-Biley Act, which repealed the Glass-Steagall Act and essentially allowed for the excessive risk taken on by banks that caused the most recent financial crisis. The Financial Stability Oversight Council was established through the Dodd-Frank Wall Street Reform and Consumer Protection Act and was created to address the systemic risks in the United States financial system and to improve coordination among financial regulators.
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
One of the major unintended impacts of the Dodd-Frank Act has been on credit unions and community banks. These banks weathered the credit crisis and lost only 6% of their share of banking assets between 2006 and mid-2010. A recent Harvard study indicates that this decline accelerated to 12% since the passage of the Dodd-Frank in July 2010. [a] While the community banks’ earnings increased by 12% to $5.3 billion by mid 2015 the number of these banks had declined according to Federal Deposit Insurance Corporation. The number of banks with assets under $1 billion has declined from around 7500 in 2010 to less than 6000 since Dodd-Frank came into effect. [b] Increased compliance costs due hiring of new personnel to interpret the new regulations compelled these banks to cut down on customer service amongst other things. The law hurt them disproportionately and forced them to consolidate. Regulatory economies of scale drive the process of consolidation. A larger bank is often more equipped at handling increased regulatory burdens
The term Whistleblower means “An employee who discloses information that s/he reasonably believes is evidence of illegality, gross waste or fraud, mismanagement, abuse of power, general wrongdoing, or a substantial and specific danger to public health and safety. When information is classified or otherwise restricted by Congress or Executive Order, disclosures only are protected as whistleblowing if made through designated, secure channels. (What is a Whistleblower?)” The idea behind whistleblowers is that they believe trying to inform the public of illegal acts within their businesses has the potential to protect the public from wrongdoing. The following studies analyze scholar’s findings on different factors related to whistle blowing as
The Department of Labor. (2010). Compliance Assistance - Fair Labor Standards Act (FLSA). Retrieved from
equally and lawfully treat or even hire workers can expose the agency to action such as lawsuits,
Although Hollate introduced a compliance program and code of conduct when it went public, the programs were put on “the back burner”. This outcome is not surprised for that the company does not pay attention to the programs. It is, therefore, important to “reinforce the values” and “employee a boundary system when actions are inconsistent with the code of conduct” for the purpose of early detection. Tyco provides a good example after its scandal, by initiating “mandatory annual compliance training for all its employees worldwide” and creating the Tyco Guide to Ethical Conduct to familiarize employees with company expectations and help them make ethical decisions. As tips is the most useful method for internal and external sources to detect frauds, the whistleblower hotline should be well communicated with encouragement on reporting any suspicious activity. In addition, to improve the effectiveness of the compliance program and code of conducts, Hollate should implement management monitoring and evaluation on a regular
This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such
Work plays an important role in our daily life, it is considered much more huge part of our personal life. During our daily work we make many relationships throughout our career history. Sometimes these relationships become lasting, and sometimes employment discrimination might happen. This relationships that we thought it last could be cut off by the devastation of claims of discriminatory treatment. Discrimination in the workforce has been an issue since the first people of workers in United States in the present day and as well in the past. Some employees were subjected to a harsh working conditions, verbal abuse, denial of advancement,, and many other injustices. There was also the fact that certain employees were being treated differently than other employees.
There are many laws protecting employees and employers against harassment and discrimination. Harassment and discrimination constitutes more than just race, color, and religion. However, employees fail to report harassment and discrimination due to the lack of knowledge about their rights. Three of the most important laws e...
Whistleblowing is the action of an employee, who reports any unethical violations they see or come across in the firm. Employees should be encouraged to practise whistleblowing, also, organisations should encourage them to act up against unethical behaviour. The Whistleblower Protection Act of 1989, is a United States federal law, which protects federal whistleblowers who are working for the government and report misconduct. A whistleblower is a person who exposes information or activity that is illegal or unethical. The act of 1989 was made to protect whistleblowers.