Boards must do more to ensure that the policies they put in place to enable whistleblowers to come forward to report serious problems in their organisations are working effectively as cases of whistleblowing rise, warns the Chartered Institute of Internal Auditors (IIA).
In an IIA survey of Heads of Internal Audit across all sectors, only 69% were able to confirm that that their organisations' whistleblowing arrangements were effective, despite nearly all the organisations surveyed (92%) reporting that they had whistleblowing arrangements in place. So for a significant minority of organisations the ability to prevent future corporate crises could be undermined.
The IIA's research also uncovered particular shortcomings in the training and expertise of those handling whistleblowing calls. 57% of respondents highlighted that staff charged with responsibility for dealing with whistleblowing calls had received no training in how to do so. Furthermore, only just over half (57%) of the organisations represented in the survey provide feedback or progress updates to whistleblowers, according to respondents.
These findings, published in a new report by the IIA on the role of internal audit in whistleblowing, suggest the effectiveness of whistleblowing procedures in many organisations could be significantly improved and the confidence of staff members reporting information enhanced.
Internal auditors advise boards on the effectiveness of controls in place to manage the wide range of risks facing an organisation, including, for example; financial and fraud risks, data security risks and health and safety risks. They help the board and management identify and address risk management, internal control and corporate governance issues before they become a problem.
The IIA points out that without a clear and properly resourced whistleblowing strategy, businesses may be vulnerable to a variety of risks - ranging from accounting fraud and corruption, to negligent safety practices, to workplace bullying - that could cause serious financial and reputational damage.
The IIA says that recent reports and published statistics suggest that the incidence of whistleblowing is increasing, particularly in financial services and the health and social care sector and particularly since the introduction of the Bribery Act in 2010.
Dr Ian Peters, Chief Executive of the Chartered Institute of Internal Auditors (IIA) said:
"Whistleblowing arrangements play a crucial role in any organisation's system of internal control but particularly in large organisations, helping them to reduce the risks of serious problems causing financial loss or exposing the organisation to regulatory or legal action. But the arrangements must function correctly. This is why, for example, the UK Corporate Governance Code states that boards of listed companies should ensure these arrangements are properly planned and properly implemented.
"But despite a number of poorly managed whistleblowing cases causing huge damage to large organisations in both the public and private sectors in recent times, it is worrying that a very significant minority of Heads of Internal Audit are sceptical about the adequacy of whistleblowing arrangements in their organisations. This is something that boards should be asking questions about."
Michael Woodford MBE, former CEO of Olympus and Whistleblower, said: "The whistleblowing report by the Chartered Institute of Internal Auditors reinforces the importance of effective internal audit in increasing the likelihood that malfeasance can be identified at the earliest possible stage.
"From my perspective, the recent scandals and tragedies which have unfolded across a range of sectors, and have so appalled the public, revealed a dangerous culture of silence. Therefore, strengthening the role of internal auditors can only be beneficial."
Michael Woodford will address this year's IIA international conference on the importance of whistleblowing on July 7th.