Parliamentary Inquiry on Whistleblowers | KPMG | AU

Parliamentary Inquiry on Whistleblowers. Don’t expect a bounty bonanza

Parliamentary Inquiry on Whistleblowers

KPMG response to the report on whistleblowing by the joint Parliamentary Committee on corporations and financial services – don’t expect a bounty bonanza.

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Lauren Witherdin, KPMG Forensic Director said:

“The reward system that has been proposed by the Parliamentary Committee is a positive step forward – but is very different to the typical US-style bounty system, and anyone expecting a bounty bonanza may need to temper their expectations. Any reward payable under the proposed system is likely to be much more modest that the large payments we’ve seen in the US.

Firstly, the reward would be a proportion of the penalty imposed against the whistleblower’s employer, and currently the penalties here in Australia are far lower than those in the US. And secondly, the proposed system would include a ‘cap’ on the maximum reward available to a whistleblower.

The proposals cleverly retain many of the advantages of a rewards system whilst including strict criteria to be considered that will likely result in Australia avoiding many of the negative consequences attributed to a US-style system.

We believe this will result in more whistleblowers coming forward, as well as motivating organisations to take whistleblower protection more seriously and improve their internal programs.

However, we caution that care needs to be taken in the drafting of the legislation. The legislation should encourage whistleblowers to report through internal reporting mechanisms in the first instance. Bypassing internal reporting mechanisms and going direct to a regulator is not an efficient use of public resources and has the potential to actually detract from the regulators’ ability to focus on the most serious breaches. We believe that whistleblowing should continue to be primarily a public good in the first instance, and personal gain should be secondary.”

When people think of a reward system they tend to think about the US-style Dodd-Frank bounty system which provides uncapped rewards to whistleblowers and has a very broad focus. There has been heated debate about the ethical issues this type of a system would pose, the litigious culture it may create, and the concept has been deemed ‘unAustralian’ by some. KPMG has not supported a US-style bounty system, along with many of the other parties who submitted to the Inquiry.

But the reward system proposed by the Committee is a very different proposition to the US style system.

It places a cap on the reward available to a whistleblower and would require a very strict set of criteria to be considered in determining the reward payment. For example:

  • the degree to which the whistleblower's information led to the imposition of the penalty
  • the timeliness with which the disclosure was made; and
  • whether there was an appropriate and accessible internal whistleblowing procedure within the company that the whistleblower felt comfortable to access without reprisal.

Other criteria that would be taken into account includes:

  • whether the whistleblower disclosed the protected matter to the media without disclosing the matter to an Australian law enforcement agency, or did, but did not provide the agency with adequate time to investigate the issue before disclosing to the media
  • whether the whistleblower received any compensation for adverse action taken against them by their employer (as well as any stipend provided by the Whistleblower Protection Authority); and
  • any involvement by the whistleblower in the conduct for which the penalty was imposed, noting that immunity from prosecution (seeking a reduced penalty against the whistleblower etc.) is dealt with by separate processes and that a reward would be regarded as a proceed of crime – if the whistleblower had been involved in criminal conduct (i.e. immunity or reduced penalty, not the reward, is the benefit and incentive).

Any reward payable under the proposed system is likely to be much more modest that the large payments we’ve seen in the US.

First, the reward would be a proportion of the penalty imposed against the whistleblower’s employer, and currently the penalties here in Australia are far lower than those in the US.

Second, the proposes system would include a ‘cap’ on the maximum reward available to a whistleblower.

And of course, the reward would only be an option when the allegations are investigated, founded and a penalty is imposed on the wrongdoer.

Notes to editors: KPMG Australia’s whistleblowing experience

KPMG operates a confidential whistleblowing service for clients. This experience informed our submission to the Parliamentary Inquiry on whistleblowing.

FairCall trends:

  • The FairCall service has seen a spike in the number of disclosures since the Parliamentary Inquiry commenced.
  • There has been a 45 percent increase in the number of disclosure received this year (Jan to 31 Aug) compared to the same period last year. 79 percent of the reports are anonymous or partially anonymous (contact details provided to KPMG whilst discloser anonymous to their employer). This is consistent with prior year.
  • We are seeing an increase in payroll frauds and collusive frauds in the procurement space. We also continue to see a significant number of disclosures involving allegations of bullying and harassment.
  • Interestingly most disclosures are received in the afternoon.

Other observations more broadly:

  • We are seeing corporates across Australia (and internationally) place more focus on their whistleblower programs, and we are seeing deeper engagement at the board and audit/risk committee level. We are seeing board and audit risk committees increasingly calling for independent reviews of their whistleblower programs with a desire to ensure they are ‘effective’ and ‘better practice’ particularly in the financial services sector that tends to lead the way in terms of better practice.
  • A key issue for many organisations continues to be a lack of practical procedures for ‘protecting’ whistleblowers. Often organisations will communicate their intentions to ‘protect’ whistleblowers in their policy, however unless this is supported by practical procedures – for example ensuring their senior people are properly trained to handle disclosures, that risk of reprisal is assessed, that a protection officer is made available to the whistleblower) and that the company has a positive reporting culture, then the protection of disclosers may be jeopardised.

Further information

Ian Welch
Associate Director, KPMG
T: 0400 818 891
E: iwelch@kpmg.com.au

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