Whistleblower Rewards, False Reports, and Corporate Fraud

Abstract

It is often claimed that rewards for whistleblowers lead to fraudulent reports, but for several US programs this has not been a major problem. We model the interaction between rewards for whistleblowers, sanctions against fraudulent reporting, judicial errors and standards of proof in the court case on a whistleblower's allegations and the possible follow-up for fraudulent allegations. Balancing whistleblower rewards, sanctions against fraudulent reports, and courts'standards of proof is essential for these policies to succeed. When the risk of retaliation is severe, larger rewards are needed and so are tougher sanctions against fraudulent reports. The precision of the legal system must be su¢ ciently high, hence these programs are not viable in weak institution environments, where protection is imperfect and court precision low, or where sanctions against false reporting are mild. Internal reporting channels may interfere with external ones in unexpected ways.

Analyzing the effect of financial reward, personal cost and reporting channel on whistleblowing intentions utilizing an experimental study

“…Whistleblowing only occurs if individuals believe that the benefits of reporting outweigh personal costs (Hooks et al, 1994). The results of this study are also relevant with previous studies (Taylor & Guthrie, 2015;Buccirossi et al, 2017;Guthrie & Taylor, 2017) demonstrating that greater whistleblowing intentions occurs when given financial rewards at low personal cost conditions.…”

Myths and Numbers on Whistleblower Rewards

“…If European countries and their regulatory and law enforcement institutions are not capable of having an open and honest debate, based on the available evidence from rigorous research and from previous experiences in other countries, then they would hardly be able to competently design and properly administer a system of rewards for whistleblowers. Following Buccirossi et al (2017), in such weak institutional environments, high-powered tools like whistleblower rewards should be avoided, as in the hands of incompetent law-makers and corrupt or captured regulators, they would likely produce more harm than good.…”

“…Whether fraudulent claims are a concern for the efficacy of a whistleblower reward program is to a large extent dependent on the precision of the court system. Buccirossi et al (2017) analyze this concern within a formal economic model. They show that this argument is entirely irrelevant for countries with sufficiently precise/competent court systems, provided that strong sanctions against perjury, defamation and lying under oath are there to balance the incentives generated by large bounties.…”

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“…Spėjama, kad atlyginimo už pateiktus pranešimus nustatymas lemia didesnį klaidingų pranešimų skaičių. Kita vertus, JAV atlikti tyrimai patvirtino, kad atlyginimo pranešėjams programos gali sėkmingai veikti, esant tam tikrų sąlygų visumai: tai subalansuota atlyginimų sistema, sankcijos už apgaulingus pranešimus apie pažeidimus ir aukšti teisminiai įrodinėjimo standartai tokio pobūdžio bylose 60 . Kategoriškai negalima teigti, kad Lietuva yra pasirinkusi deramą pranešėjų finansinės paramos mechanizmą, nes tik pradeda formuotis šio mechanizmo veikimo praktika.…”