Study shows anonymous whistle-blowers less likely to be believed

Jul 12, 2010

According to a new study, corporate directors, who are ultimately responsible for internal whistle-blowing systems, often do not take action at all regarding anonymous allegations, even when the allegation involves very serious accounting breaches. However, if an identical non-anonymous allegation surfaces, audit committees often launch into action and the corporate director allocates significant resources to the investigation at hand. The first study to investigate the whistle-blowing issue with practicing audit committee members is now published in the Journal of Management Studies.

Public corporations are required to provide anonymous whistle-blowing channels to their employees. Anonymous reporting channels are intended to protect shareholders from financial fraud by making it more likely that fraud will be reported to the board of directors. The study explores how these whistle-blowing channels allow employees at major U.S. corporations to report fraudulent accounting and auditing matters without fear of retaliation from management, how evidence of fraudulent activity is viewed by the board of directors, and how these situations are handled by the board of directors when they occur.

The study finds that anonymous allegations are treated very differently from non-anonymous allegations, and anonymous allegations are largely ignored, particularly when the allegation threatens a member of leadership's reputation. Over eighty audit committee members from U.S., publicly traded companies participated in the study. They were asked to determine and report on the credibility of whistle-blowing allegations from varied non-anonymous or anonymous sources.

"We found that when an allegation poses a threat to a director's professional reputation, a form of distortion of information occurs. An audit committee has an incentive to not investigate the allegation when it creates a reputation threat, and this causes the committee member to believe the allegation is less credible," said Jake Rose, Ph.D., an Associate Professor at the University of New Hampshire Whittemore School of Business and Economics, and co-author of the study. "Our presumption is that most corporate managers, auditors, and corporate directors are honest and ethical people. However, under certain circumstances, 'good' people can engage in 'bad' behavior."

The study finds an essential failure of U.S. corporations' first line of defense against financial fraud. Rose recommends that, "An independent body outside of the corporation needs to be in charge of investigating whistle-blowing allegations." The authors also point out the potential pitfalls of allowing directors to serve on multiple corporate boards.

Explore further: Poll surveys residents of two war-torn African nations

More information: "Effects of Anonymous Whistle-Blowing and Perceived Reputation Threats on Investigations of Whistle-Blowing Allegations by Audit Committee Members." Jacob M. Rose and James E. Hunton. Journal of Management Studies; Published Online: February 24, 2010 DOI:10.1111/j.1467-6486.2010.00934.x

add to favorites email to friend print save as pdf

Related Stories

Emotions an overlooked key to whistle-blowing, study says

Dec 07, 2009

A gut-level connection with workers may be the key to encouraging whistle-blowing that could chip away at an estimated $652 billion lost to fraud annually by U.S. businesses, an ongoing University of Illinois study suggests.

Recommended for you

When rulers can't understand the ruled

8 hours ago

Johns Hopkins University political scientists wanted to know if America's unelected officials have enough in common with the people they govern to understand them.

When casualties increased, war coverage became more negative

12 hours ago

As the number of U.S. casualties rose in Afghanistan, reporters filed more stories about the conflict and those articles grew increasingly negative about both the war effort and the military, according to a Penn State researcher. ...

Poll surveys residents of two war-torn African nations

17 hours ago

Researchers fanned out in one of the most dangerous corners of the globe late last year, asking residents of a brutalized part of the Democratic Republic of the Congo (DRC) their thoughts on violence, security, ...

Drunk driving women treated differently than men

17 hours ago

A study by Victoria University of Wellington's Health Services Research Centre explores attitudes and behaviours surrounding women and drink-driving, and the extent to which they have changed over the past decade.

User comments : 0