Who Should Investigate Whistleblower Reports in the Company?

One of the important lessons in the biggest fraud case in Europe that occurred in Danske Bank was the importance of companies investigating whistleblower reports. If Danske Bank had investigated the reports of illicit funds from the initial, it might not have suffered losses of up to 8 billion euros and bear reputation damage that would be difficult to recover. However, who exactly should investigate if a company gets a report from a whistleblower?

If the company responds to all reports that enter the whistleblowing system, then generally they will assign internal auditors to investigate. There are at least three advantages to assigning internal auditors. First, the management is more receptive to the investigation because it is familiar with its personnel. Second, it is cost-effective. Third, internal auditors are more familiar with the situation of the company and its employees.

However, Frederick D. Lipman in his book entitled “Whistleblowers: Incentives, Disincentives, and Protection Strategies” said that for the sake of a balanced investigation, the company needs to assign external auditors who report directly to independent directors. According to him, internal auditors, however, are employees who are paid by the company. This poses a risk of an impaired investigation. In addition, internal auditors tend to be not equipped with independent investigative skills.

In fact, a whistleblower has risked his career in the company, even in the industrial field that he/she has worked for by revealing an ugly fraud in whistleblowing system. Not to mention the reputation risk addressed to him/her as a traitor to the company and the risk of being ostracized. Things that the company can do are at least assign an external auditor for the sake of an investigation that is free of interest, even though the company must increase the budget.

Alternatively, the company may want to assign both internal and external auditors. The presence of an external auditor can ensure that the investigation will be independent. Their expertise and knowledge can guide the company through all the unknown possibilities. However, there are things that need to be considered by the company in choosing an external auditor. The most important is not choosing an investigation company that has is close to the company as it potentially can obscure independence.

Source:

Lipman,Frederick D., (2012). Whistleblowers:Incentives, Disincentives, and Protection Strategies