A new report from the Internal Audit Foundation reveals that 23% of internal auditors still experience pressure to suppress or significantly modify audit findings. The report is based on a survey of more than 14,500 audit professionals from 166 countries. Notably, an additional 11% of participants responded “prefer not to answer,” totaling a 34% “pressure score” for all participants.
In North America, internal auditors reported greater pressure than the global average, with 25% of participants indicating that they experienced substantial pressure to suppress or significantly modify audit findings. This statistic is particularly troublesome considering that new laws in the United States provide auditors with strong protections and incentives, including monetary awards, for reporting wrongdoing.
Whistleblower Protections for Auditors Under Sarbanes-Oxley and Dodd-Frank
The Sarbanes-Oxley Act (“SOX”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) substantially protect auditors and accountants against retaliation for blowing the whistle on potentially illegal and/or unethical activities by their firms or clients of their firms. In March 2014, the Supreme Court clarified, in Lawson v. FMR LLC, that these protections also cover external auditors, i.e., “employees of contractors of public companies.”
Under SOX, auditors and accountants are protected against a broad range of retaliatory employment actions, including discharging, demoting, suspending, threatening, or harassing them, or in any manner discriminating against them. A SOX whistleblower who prevails on a retaliation claim may receive:
- lost wages and benefits;
- reinstatement; and
- special damages, which include emotional distress, impairment of reputation, personal humiliation, and other noneconomic harm resulting from retaliation.
In March 2014, a jury awarded $6 million to a whistleblower in a SOX retaliation case.
Auditors and accountants are also protected against retaliation under Dodd-Frank. While very similar to SOX’s whistleblower provision, Dodd-Frank offers slightly different remedies, including double back pay, and encompasses a broader range of protected activity, such as making disclosures that are required or protected under SOX, the Securities Exchange Act of 1934, or any other law, rule, or regulation subject to the jurisdiction of the SEC.
Monetary Awards for Reporting Violations of Securities Laws
Auditors and accountants may also receive monetary awards for exposing wrongdoing. In 2010, Dodd-Frank created the SEC Whistleblower Program, which provides rewards to whistleblowers who report violations of the federal securities laws to the SEC. Eligible whistleblowers are entitled to an award of between 10% and 30% of the monetary sanctions collected in actions brought by the SEC or in related actions brought by other regulatory or law-enforcement authorities.
To be eligible for an award, auditors must fulfill certain requirements. Dodd-Frank provides that an auditor or accountant, whether internal or external, may disclose information to the SEC and be eligible for an award if:
- the auditor has a reasonable basis to believe that disclosure of the information to the SEC is necessary to prevent a client from engaging in conduct likely to substantially injure a financial interest of the entity or its investors;
- the individual has a reasonable basis to believe that the relevant entity is engaging in conduct to obstruct an internal or SEC investigation; or
- at least 120 days have elapsed since the auditor (a) provided the information to the relevant entity’s audit committee, chief legal officer, chief compliance officer (or their equivalents), or supervisor; or (b) received the information, if the auditor received it under circumstances indicating that the entity’s audit committee, chief legal officer, chief compliance officer, or supervisor was already aware of the information.
The law permits whistleblowers who are represented by attorneys to remain anonymous when reporting pursuant to the SEC Whistleblower Program.
In August 2014, an audit-and-compliance employee received an award of more than $300,000 for reporting wrongdoing. More recently, in August 2016, a former Monsanto executive received an award of more than $22 million for exposing weaknesses in the company’s internal accounting controls. This award demonstrates how auditors are in an ideal position to identify and report fraud.
Combating Whistleblower Retaliation Against Auditors
A large portion of auditors experience pressure to suppress or modify audit findings. They can now, however, be confident that SOX and Dodd-Frank substantially protect them against retaliation for reporting their findings. Furthermore, Dodd-Frank has created a great opportunity for auditors and accountants, at thousands of public companies, to uncover wrongdoing, protect investors, and obtain considerable compensation for doing the right thing.