The Audit Committee’s Role - Whistleblower Policies

September 2018 | Article

An effective whistleblower policy is a key defense against fraud and abuse of resources. The audit committee can play a significant role in establishing and monitoring this policy.

The first step in establishing a strong policy is to develop a culture in which employees view the reporting of questionable practices and actions as a contributing factor to an environment of integrity. The audit committee can play an important role in assuring all employees are encouraged to report suspected violations of internal policies or external laws.

To be effective, the reporting process must incorporate features that ensure confidentiality of those reporting their concerns. The audit committee must also ensure all employees are confident they will be protected from retaliation.

A sound whistleblower policy contains components such as the following:

  • A flowchart of the reporting communication chain so all employees know who their primary reporting person is. This chart should include information regarding the persons involved in the receipt, handling, and disposition of complaints, including the role of the audit committee. Additional information should be included for any concerns involving top management, as these reports will require a different communication chain (such as directly to the chair of the audit committee or to internal counsel).
  • Confidentiality safeguards that ensure anonymity of individuals communicating concerns, as well as the methodology for making an anonymous report.
  • Information regarding how reported matters are investigated; for example, are all reports communicated to the audit committee? You might also consider having a process by which the disposition of concerns is communicated back to the reporting party (obviously not possible if concerns are anonymously reported).
  • Safeguards in place regarding confidentiality, and perhaps a process used to investigate suspected retaliation against reporting parties.

Other matters to consider include:

  • developing a process for internal audit of the whistleblower program to insure the operating effectiveness of the protocols, and,
  • observing retention policies regarding documentation, investigation and resolution of reported concerns.

The importance of establishing a strong whistleblower policy cannot be over-emphasized. Of equal importance, however, is the knowledge such a process exists. It is imperative that employees recognize that their concerns are being communicated and that appropriate investigative steps will be taken to resolve them. While developing your policy, consider having all employees annually sign a statement stating that they are aware of the policy and are following established protocols.

Eide Bailly’s Nonprofit team works closely with our Fraud & Forensic Advisory team to assist nonprofits in reviewing existing policies and evaluating the strength of internal controls. In addition, we have established an online anonymous hotline service that can be utilized by our clients. Please contact any member of your Eide Bailly service team to discuss how we can be of assistance.

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