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When Whistles Blow, 3 Things Auditors Must Know

From the White House to Wall Street, there has been a lot of talk lately about whistleblowers. 

In the Ethiopian Airlines scandal, an engineer warned company execs for years about shoddy aircraft service. In March 2019, a Boeing 737 crashed killing 157 people. The whistleblower engineer is now seeking asylum in the United States. (1)

According to Bloomberg, in the Nissan scandal, “auditors had been curious about Zi-A for more than a year and had at one point sent someone to the Netherlands to try, unsuccessfully, to learn more about it.” Zi-A is Dutch subsidiary of Nissan who allegedly purchased an execs home for $8.8 million, then spent $6 million renovating it. (2). And in more recent Nissan news, the whistleblower is demoted to “enable him to focus on important tasks for the company, such as forthcoming legal action”  (3)

And let’s not forget about the current US political whistleblower news. Whew. All of this whistleblower talk can be overwhelming. But there are three things internal Auditors must consider when it comes to whistleblowers.

  • The Nature of the Complaint
  • The Consistency of the Complaint
  • The Response to the Complaint

The Nature of the Whistleblower Complaint

I recall arriving at one organization to a slew of emails, little brown envelopes under my door, and text on my personal phone. It seemed as if anyone who had ever had any kind of grievance was now wanting to talk to the new guy. I’d never seen such an influx of complaints. People actually wanted to talk to audit.  As I engaged with each client, I noticed distinct themes. Most conversations began with frustration and some of the following statements:

  • My boss hates me
  • I can’t get my job done because my boss will not give me the tools that I need
  • We’re going to get into trouble one day if we keep this up
  • I just want to do the right thing
  • I just want to do my job

Have you heard any of these?

Whistleblower complaints do not just appear overnight. Usually the whistleblower has tried to communicate their concerns and after months (or even years) of frustration, decide to file a complaint through some sort of reporting process. Then, they wait in fear for something to be done.

The phrases listed above are arguments from emotion. Oftentimes clients will see you as a listening ear and utilize your office as an outlet for their feelings. It becomes important for auditors to consider if the nature of the complaint is purely emotional or factual. Oftentimes it is a combination of both and our first order of business is to settle our clients emotional state so that we can extract the facts.

The Consistency of the Whistleblower Complaint 

As a child, I spent some summers at my grandparents’ home in a rural area. I remember being in the “woods” on a calm summer day when all of a sudden, there was a strong gust of wind followed by a flurry of animals scampering past. I thought nothing of it and continued my stroll. Next, I encountered the faint smell of smoke. I didn’t think much of this either. It could have simply been a controlled burn. This was not terribly unusual. After walking a little further, I finally saw it. A construction company was cutting down trees and clearing the land. Ownership of the land was in question, so this activity was definitely suspicious. 

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There’s an old saying, “Where there’s smoke, there’s probably fire”.  And this was true in this case. The small flurry of animals should have been my first indication that something was wrong. The smell of smoke should have been my second. I missed these warning signs.

In my situation, it was very fitting that the first warning sign was from someone closest to the issue…the inhabitants of the forest. This is true in most organizations too. Front line personnel see warning signs first. And much like me in the forest, organizations miss the warning signs.

So auditors must consider the consistency and source of complaints. Complaints on, from or about specific areas in the organization may indicate a bigger problem. Complaints from front line personnel should carry extra weight. In most instances, these individuals are in the know because they are directly performing the function.

The Response to the Whistleblower Complaint

I recall once receiving a complaint about an individual who had been employed at the organization for almost 30 years. The complainant alleged direct financial fraud, inflation of productivity numbers, sexual misconduct, and several other things.

The fact-finding phase of the project proved that there were definitely problems. But attempts to communicate concerns to management were met with some of the following phrases:

  • “He could never do any of these things”
  • “I’ve known him for 30 years”
  • “This isn’t right. How dare you delve into his life”

All before looking at a single document.

Let that sink in.

If you experience a defensive posture from management without a search for truth, there may be something corrupt in the culture of your organization.Robert Berry

It reminds of that famous scene from Star Wars where Obi-Wan Kenobi uses The Force to avoid the Empire. Clearly caught and surrounded with several robots in the vehicle, Obi-Wan tells officers “These aren’t the droids you are looking for”. And while looking directly at the droids, they believe him.

Take a look at the clip.

As auditors we have to be extremely aware of management’s response to complaints and the complaint process. Is the response one of emotional engagement or is it more exploratory (looking for truth)? The former looks something like the Obi-Wan method. The latter, is when you sit calmly at the table with management and review/discuss evidentiary information. It all boils down to open, objective dialog.

CONCLUSION

When whistles blow, auditors must consider the:

  • Nature of the complainant. It should be factual not emotional.
  • Consistency of the complaint. Complaints from or about specific areas, especially from front line personnel are red flags.
  • Response from management. Is there an emotional engagement or exploratory conversation.

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Sources
1 https://apnews.com/5ff095b8b9954b03925410680e8c907d
2 https://www.bloomberg.com/news/features/2019-01-31/inside-the-takedown-of-renault-nissan-chairman-carlos-ghosn
3 https://www.autonews.com/executives/nissan-demotes-ghosn-whistleblower-nada

Robert Berry (88)

Robert (That Audit Guy) Berry is a risk, compliance and auditing advocate, educator and innovator. He helps good professionals become better by creating articles, web services and training that allow them to expand their knowledge network.

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