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By Yin Wilczek
March 10 — Companies generally are taking longer to investigate and close internal complaints, especially those involving accounting, auditing and financial reporting, which could have significant implications under the SEC's whistle-blower program, according to a March 10 report.
Navex's latest “Ethics & Compliance Hotline Benchmark Report” found that in 2014, it took companies a median of 57 days—11 days longer than the previous year—to internally investigate and close employee allegations related to accounting, auditing and financial reporting.
At this length of time, “organizations are reaching the halfway point to the 120 day opportunity for an employee to also report directly” to the Securities and Exchange Commission, the report warned.
“With longer closure times, organizations risk loss of employee trust and confidence in leadership, and the threat of getting too close to the waiting period for reporting to external regulatory bodies,” Carrie Penman, chief compliance officer and senior vice president, Advisory Services, Navex Global, said in a related release.
Penman suggested that the longer closure times may be due to the rise in the volume of complaints without a corresponding increase in compliance personnel to investigate the claims.
Navex's annual hotline benchmark reports track complaints made through its hotline and case management systems by employees at more than 4,600 companies.
Under the SEC's whistle-blower rules, informants who report problems first to their employers rather than the SEC can retain their place in line for an award if they subsequently report the problem to the commission within 120 days of the internal report.
In addition, although directors and other corporate insiders that hear of fraud through employee reporting generally can't collect SEC bounties, they may be eligible if they report the information to the SEC more than 120 days after the firm's internal compliance system fails to address the situation.
The SEC March 2 issued its first-ever reward to a former corporate officer for unveiling a securities fraud at his company.
Moreover, audit or compliance professionals may be eligible for bounties if they approach the SEC 120 days after reporting internally to their companies.
The Navex report also found notable that it took companies a median of 39 days to close human resource, diversity and workplace-related matters, which often may be remedied within a week.
“Given the impact that a festering workplace problem can have on morale, productivity and organizational culture, taking nearly 40 days to address and close this type of case is not desirable,” it stated.
In other highlights, the report found that while there was no significant increase in employee retaliation reports, there was a sizeable increase in the substantiation rates for those reports—27 percent in 2014 compared to 12 percent in 2013. This could be a sign that compliance and ethics personnel are taking a more serious approach to such allegations, the report suggested.
Navex also added a new statistic to its report—whether employees are using hotlines to report allegations or to ask about company policies and procedures. The report found that during the past five years, employees overwhelmingly were using hotlines to report allegations. It suggested that this may be an opportunity for employers to start promoting their hotlines as information channels rather than just mere reporting conduits.
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The report is available at http://www.navexglobal.com/sites/default/files/uploads/NAVEXGlobal_2015_Hotline_Benchmark_Report030515-2.pdf.
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