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March 21 — Explicit anti-retaliation policies for would-be audit whistle-blowers, when coupled with vivid descriptions of retaliation, may actually discourage the in-house reporting of dubious activities, academic researchers suggest.
Experimental research by two professors of accounting revealed that under such scenarios, “auditors assess the risk of reporting as higher and, as a result, are less likely to indicate” that misconduct will be reported through an audit firm's whistle-blower hotline.
The research, published in the spring 2016 issue of the American Accounting Association's Behavioral Research in Accounting, was conducted by James Wainberg of Florida Atlantic University and Stephen Perreault of Providence College.
Whistle-blower hotlines are particularly important at audit firms because auditors generally are viewed as being in “the first line of defense against corporate malfeasance,” Wainberg and Perreault write. “Given the critical importance of whistleblowing as a means to detect fraud, factors that influence the decision to report misconduct should be of significant interest to all stakeholders interested in good organizational governance,” the authors write.
More than $37 million was paid to whistle-blowers by the Securities and Exchange Commission in 2015, according to SEC statistics. Despite the prevalence of whistle-blower hotlines in organizations and efforts to protect against retaliation, about half of the misconduct identified by employees goes unreported, according to research cited by Wainberg and Perreault.
“Our results suggest that the inclusion of explicit protections from specific forms of retaliation can lead to an increase in the salience of such threats, thereby significantly lowering the likelihood that the misconduct will be reported through whistle-blower hotlines,” according to the authors of the study.
“Indeed, rather than diminishing the fear of retaliation, our mediation analysis indicates that auditors’ perceptions of reporting risk were, in fact, intensified by the presence of explicit protections” in a hotline policy, the professors write.
Wainberg and Perreault write that the results “may appear counter-intuitive on the surface,” but are consistent with predictions based on what is known as “vividness congruence theory” in the field of psychology.
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The article by Wainberg and Perreault is available athttp://aaahq.org/Portals/0/documents/misc/Whistleblowing%20in%20Audit%20Firms%20article.pdf.
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