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o The fraud cannot be a tax fraud; tax fraud is specifically exempt from prosecution
under the False Claims Act.
REPORTING TAX FRAUD
• In 2006, with estimates of U.S tax evasion as high as $350 billion, the IRS created a
Whistleblower Office to receive information about possible individual or corporate tax
frauds.
DODD-FRANK ACT OF 2010
• The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, developed in
WHISTLEBLOWER PROTECTION LAWS
• Fear of retaliation is one of the primary reasons why employees do not blow the whistle
on illegal activities.
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• Retaliation protection clauses are common for new federal laws.
• Table 9.8, Whistleblower Protection Laws, summarizes key federal laws that protect all,
or major groups of, employees from retaliation for whistleblowing.
o 1935 National Labor Relations Act forbids employers from retaliating against any
employee who files a charge with the National Labor Relations Board.
DISCUSSION ACTIVITY
Several critics of whistleblowing reward systems argue that employees blowing the whistle
should first be required to inform an internal manager and provide the company time to correct
WHEN TO BLOW THE WHISTLE
• Blowing the whistle on an employer can be detrimental to the whistleblower as well as
the organization.
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• The process should begin by consulting with an attorney.
• Legal advisors recommend that the following four conditions be met before an employee
informs an external authority.
1. Serious harm is involved.
The decision to blow the whistle on an employer requires careful consideration. Whistleblowing
can have many negative impacts on an employee’s life. Researchers report that soon after
blowing the whistle, many whistleblowers experience:
1. Negative performance evaluations
2. Undesired job transfers
3. Demotions
• All of the retaliatory actions listed above are prohibited by law.
• Nonetheless the legal process can take years to settle the issue, during which time the
whistleblower might be unemployed and without any guarantees the outcome will be
favorable.
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Chapter 9 QUESTIONS ANSWERED
Chapter Question 1: Why do some employees refuse to report ethical misconduct?
REASONS FOR EMPLOYEE SILENCE
• According to an Ethics Resource Center survey, employees primarily report misconduct
when they
• Table 9.3, Reasons for Employee Silence, highlights a wide range of organizational
factors, observer factors, and anticipated negative outcomes reasons for maintaining
silence about an observed ethical misconduct.
o Organizational factors—no established reporting system, lack of anonymity for
reporting
Chapter Question 2: What qualities and skills must a manager develop for employees to
feel comfortable approaching the manager about ethical issues and unethical behaviors?
The best ethics reporting system is a manager who
• Welcomes ethical discussions with employees and input on ethical misconduct
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• Makes ethical discussions part of an ongoing dialogue
• Can demonstrate familiarity with the types of ethical issues the organization experiences
Chapter Question 3: How does the size of an organization determine the type of ethics
point person that could best serve an organization?
SMALL BUSINESS
• Mentor, owner, other senior employee—Ethics responsibility is assigned to someone who
is in the core management circle and well-informed about firm operations.
MODERATE SIZE ORGANIZATION
LARGE ORGANIZATION
• Ethics and compliance officer
Chapter Question 4: What are the attributes of an effective ethics assist line?
• Confidentiality and false accusations are two central issues addressed by effective assist
lines.
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AICPA Audit Committee Ethics Assist Line Checklist
___ Does the assist line have a dedicated hotline number, website, email address, or post office box address
to expedite reports of suspected incidents of misconduct?
___ Does the assist line demonstrate confidentiality, including showing how caller ID, email tracking, and
other technologies cannot be used to identify the whistleblower?
___ Are callers provided a unique identification number that enables them to call back later anonymously to
receive feedback or follow-up on questions from investigators?
___ Does the assist line have a case management tracking system to log all calls and their follow-ups and to
facilitate management of the resolution process?
___ Does the assist line have established protocols for the timely distribution of each type of complaint to
Chapter Question 5: What are some negative outcomes that many whistleblowers have
experienced?
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The decision to blow the whistle on an employer requires careful consideration. Whistleblowing
1. Negative performance evaluations
2. Undesired job transfers
3. Demotions
CHAPTER 9 ANALYSIS FOR “WHAT WOULD YOU DO?” OPENING DILEMMA
CHAPTER 9: What Would You Do? Google Employee Dissent
Summary
• You are a manager at Google and your subordinates are talented, hard workers,
mission driven and idealistic.
• Google executives plan to fire four employee activist leaders for violating data-
security policies, even though technically that is not the case. One of the employees is
part of your team.
• What would you do?
• A: Do as instructed and tell her she is being terminated for violating data-security
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Table 6.3 Systematic Rational Ethical Decision-Making Process
1. Who are all the people affected by the action?
2. What option benefits me the most (egoism)? Why?
3. What option does my social group support (social group relativism)? Why?
4. What option is legal (cultural relativism)? Why?
5. What option is the greatest good for the greatest number of people affected (utilitarianism)?
Why?
6. What option is based on truthfulness and respect/integrity toward each stakeholder
(deontology)? Why?
7. What option would a virtuous person do (virtue ethics)? Why?
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Refuse to terminate her (Option C): Moral character is strengthened by standing up for
the employee if you believe she has not violated the company’s policies.
Note
• If answers to Questions 2 through 7 are all the same option, then do that option.
• If answers to Questions 2 through 7 are mixed, then:
Option
Option Strengths Based on
Application of Ethical Theories
Option Weaknesses Based on
Application of Ethical Theories
A: Terminate her
and tell her she is
being terminated for
This option benefits you and the
executives the most.
She will at least know the reason
She may protest and pursue legal
action against you and the
company.
C: Refuse to
terminate her because
it seems as if she
You stand up for your employee.
This option shows disrespect for
your executives.
You will likely suffer retaliation
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Option Chosen
Option A: Terminate her and tell her she is being terminated for violating
data-security policies.
Chosen Because
This option is based on utilitarianism and deontology. By terminating her
and telling her that she violated data-security policies you show respect to
your executives and secure your position in the company. While this
CHAPTER 9 ANALYSIS FOR UP FOR DEBATE
Up for Debate: Whistleblower Reward Program Rules
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The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, includes a
whistleblower program for employees to report frauds against the government reported directly
to the SEC with the opportunity to receive 10% to 30% of the recovered amount.
Since then, the U.S. Chamber of Commerce and others have argued that the law should
be amended to require that the employee first report the information through the employer’s
Defenders of the existing law argue that tips play a vital role in uncovering fraud.ii
Reporting a fraud internally first to lawbreakers would delay effective regulatory interventions in
cases of serious fraud. The lawbreakers profiting from the fraud would intimidate witnesses and
1. Should the SEC’s whistleblower program be amended to require that employees
first report misconduct to a company’s internal reporting system prior to informing the
SEC?
a. Yes.
Up for Debate:
Yes
• The company should be allowed to
investigate potential fraud and fix
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potential problem before it becomes
public (utilitarianism, deontology).
• Employees have the duty to report
misconduct in the workplace in such a
way to minimize harm to the
corporation and all its stakeholders
(utilitarianism).