SEC whistleblower reporting and record payouts are red flags for organizations and their internal whistleblowing systems | NAVEX Global

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November 15e, the Securities and Exchange Commission (SEC) Whistleblower Office (OWB) released its 2021 annual report to Congress which reports staggering statistics for fiscal 2021 and is expected to sound the alarm bells for organizations and their internal reporting systems .

Last year, the Commission awarded more awards to whistleblowers than to all previous years combined, totaling $ 564 million given to 108 people. Also in 2021, the OWB processed 12,200 requests – more requests than any previous year, a 76% increase from 2020 and an increase of over 300% from the program’s first full year in 2012. It It is important to note that Fiscal year 2020 was also a banner year for whistleblowers and awards.

One thing is clear: there are more reasons than ever for employees to report outside.

Additionally, according to the report, 75% of award recipients in FY2021 first raised their concerns internally to supervisors, compliance staff or through internal reporting channels, posing the question. question of what went wrong in internal reporting processes. What is perhaps more concerning is that historically 80% or more of award recipients have declared internally first. This decrease could indicate (among other things) a decrease in confidence in their employer’s ability to respond appropriately to concerns.

These disturbing statistics raise two questions: why have these employers not addressed or resolved these cases? And why has the number of internally reported cases initially declined compared to previous years? It is unlikely that all of this was attributable to the pandemic and remote working, as these rewards were likely the result of tips provided years before. And, given the significant increase in the volume of advice provided to the SEC in fiscal 2021, compliance programs need to be rethought.

Perhaps the key phrase the SEC’s focus on is “internal to supervisors.” If a report does not go beyond a supervisor, the organization does not have the ability to process it. Now more than ever, it’s important to make sure all managers and supervisors are trained on what to do when an employee raises a problem with them. Most organizations encourage employees to talk to their supervisors first. But we don’t always give these supervisors the tools to know how to recognize a report and what to do with it.

One thing is clear: there are more reasons than ever for employees to report outside. On the removal of Dodd-Frank whistleblower protection from inside journalists by the Supreme Court in Digital Realty Trust vs. Somers, Following recent changes by the SEC to its whistleblower program, reporters are benefiting from a growing number of legal and regulatory incentives to bypass their internal reporting systems. And we can no longer underestimate the allure of big wins and the growing number of SEC whistleblower reporting law firms.

Ultimately, however, these journalists were ours to lose – at least the 75% of the award winners who first tried to raise issues internally. Of all the potential causes that people turn to the SEC to report wrongdoing, the most important are culture. An environment in which reports are apparently not heard or acted upon will lead employees to find alternative methods of reporting misconduct. Some may use social media or speak directly to the press. Some may simply quit, costing their organization key talent. Others go to regulators.

The bottom line: in the absence of a culture that encourages speaking out and protections for internal journalists, employees are more likely to report issues elsewhere, including directly to the SEC.

Additionally, too many organizations operate under the false sense of security that, because they receive few reports of retaliation internally, they don’t have a problem. Our NAVEX Global benchmarking data shows that employees do not report retaliation internally. They go to “Plan B” in whatever form. While not all retaliation cases have been reported to or addressed by the SEC, the Commission has taken note of the ongoing proceedings regarding a retaliation case against a whistleblower, in addition to the overt attempts to impede their communication directly with the Commission regarding the complaint. .

Because the OWB has seen many instances of retaliation efforts to suppress disclosure of employer wrongdoing, they have had to work to advance retaliation protections. Exchange Act rule 21F-17 (a) states that “[n]o a person may take any action to prevent a person from communicating directly with Commission staff about a possible violation of securities law, including the enforcement or threat of enforcement of an agreement confidentiality. . . with respect to these communications.

The bottom line: in the absence of a culture that encourages speaking out and protections for internal journalists, employees are more likely to report issues elsewhere, including directly to the SEC. If organizations do not recognize and appreciate the value of their employee hotline reporting data, respond without retaliation, and take meaningful action to mitigate the issue, we will continue to see an increase in the number of reports that bypass them. internal hotline reporting mechanisms. for an alternative, safer and perhaps more lucrative approach.

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