Every organisation needs mechanisms that can help it keep its operations honest, compliant, and safe.  Speaking of the early detection of deviations and risk indications, internal audits and whistleblowing are the most important and highly effective tools.  Though at first glance they might seem similar, both techniques provide fundamentally different insights into the inner working of a company.

Whistleblowing: Spotlight on Unethical Behaviour

Whistleblowing is the process whereby individuals, insiders or outsiders, identify something possibly wrong and set off the alarm through proper channels.  These whistleblowers often detect more than audits could do because they are closer to the activities being carried out day to day, seeing the aftermath of these actions firsthand. They can point out the issue, whereas during an audit, you “comb” in general through many aspects of a company, and often there is no specific indication what to look for, and it usually is a systematic but general approach.

Here’s a breakdown of common cases and some examples of what whistleblowers bring to light:

1. Fraud and Financial Misconduct: Whistleblowers expose serious financial wrongdoing, from accounting fraud to insider trading. Actually, because they are usually much closer to the core of operations concerning financial transactions, their tips can trigger thorough investigations that bring out what was kept well hidden.
2. Workplace Harassment and Discrimination: Many employees witness hostile work environments, discrimination, or harassment. Whistleblowing for these persons becomes a channel where one reports on what is happening, whether it is bullying, sexual harassment, or unfair treatment based on one’s gender, race, or other factors.
3. Regulatory Violations: Whistleblowers who are aware of questionable environmental practices may point out specific instances of undisclosed waste disposal or pollution. Whistleblowers of this nature may therefore bring attention to practices that are causing ecological damage.  Reports of this nature would invoke consequences beneficial not only to the company but also to society in general.
4. Safety Concerns: Employees generally detect safety violations in industries related to high risks, such as healthcare or manufacturing. Whistleblowers, by reporting unsafe working conditions or defective products, may prevent further harm to employees and the public.
5. Contract Fraud: Whistleblowers often bring forward cases related to fraud in contracting, overcharging, cutting corners on quality, or even failing to carry out contractual duties. Such information helps avoid corruption and ensures that what the companies or organisations pay for is what they get.
6. Bribery and Corruption: Whistleblowers can expose instances of bribery or corruption, such as illegal payments to government officials, kickbacks, or unethical favours to secure contracts or favourable treatment. These reports help ensure transparency, hold responsible parties accountable, and promote fair business practices.
7. Data Privacy Violations: In a world where data protection is critical, whistleblowers may report on the unauthorised use or sale of customer data, mishandling of sensitive information, or breaches of privacy policies, ensuring the company’s compliance with data protection laws.
8. Tax Evasion: Whistleblowers might uncover strategies that companies or individuals use to evade taxes, such as hidden accounts, false deductions, or underreporting revenue. By doing so, they help uphold tax compliance and financial integrity.
9. Human Rights Violations: Reports in this area can focus on forced labour, child labour, or exploitation in supply chains. Whistleblowers raise awareness about unethical practices, often triggering compliance measures that protect vulnerable groups.

Key Characteristics of Whistleblowing

1. Motivation: The moral obligation or legal duty is often what sets a whistleblower to expose misconduct. It could also be for personal reason, such as being one of those victimised by the wrong action, or possibly due to damage the misconduct could have caused.  For these reasons, a person might feel the need to act accordingly out of self-interest or justice.
2. Risk: Whistleblowers often face retaliation, such as job loss, legal action, or ostracism.
3. Scope: Focuses on specific incidents or patterns of behaviour that are unlawful or unethical. They clearly point out that, in contrast to the general approach of an audit, which often involves searching for a needle in a haystack.

Examples of Successful Whistleblowing Cases:

1. Edward Snowden (2013): Snowden is a former NSA contractor who leaked out classified information on the extent of global surveillance programmes. His disclosures have prompted an international debate on privacy and government overreach, changing U.S. surveillance laws.
2. Sherron Watkins (2001): As an Enron executive, she blew the whistle to higher management about accounting irregularities. Her internal warning and later testimony were crucial in uncovering one of the largest corporate frauds in history.
3. Frances Haugen (2021): A former Facebook employee, Haugen, disclosed internal documents detailing how algorithms at the company fuel harmful content. Her disclosures resulted in new scrutiny and calls for stronger regulatory action against social media platforms.

Internal Audits: Systematic Checks for Integrity

Whereas whistleblowers tend to always focus on ethical and human-centred issues, internal audits delve deep into an organisation’s processes from a different perspective.  Conducted by a team of auditors within the company – or sometimes by external auditors – these systematic reviews are focused on ensuring compliance, efficiency, and accuracy in financial and operational processes.  Here’s what internal audits typically uncover:

1. Financial Irregularities: Internal audits also facilitate the detection of financial fraud or misstatements in financial statements while ascertaining compliance with accounting standards to protect the integrity of the organisation’s finances.
2. Regulatory Compliance: Auditors continually evaluate the extent to which the company complies with industrial regulations and governmental laws. It is easier this way for the organisation not to inadvertently-or intentionally-overstep the boundaries of the law on legal expectations, when fines may be very costly.
3. Operational Inefficiencies: The auditors analyse resource allocation, how supply chains are managed, and how processes are executed. They recommend ways, after their review, of better streamlining operations to cut costs or enhance productivity.
4. Risk Management: Every organisation faces risks, whether financial, operational, or reputational.  Internal audit tests the effectiveness of the company’s strategies regarding risk management by identifying weaknesses in the attempt to propose ways to mitigate the potential issues before turning out to be major problems.
5. Internal Control Weaknesses: If controls in a company are weak, they may open up avenues for fraud or mismanagement. Auditors assess these controls on a continuous basis to help organisations strengthen their defences against misconduct.

Key Characteristics of Auditing

1. Motivation: Aimed at ensuring transparency, compliance, and operational efficiency. Safeguarding the company’s reputation and integrity by executing systematic control.
2. Risk: Auditors typically face less personal risk compared to whistleblowers.
3. Scope: Broad and methodical, covering various aspects of the organisation’s operations and financial practices.

Example of Successful Audit

1. Toshiba (2015): Toshiba fell into a serious financial scandal when an internal audit discovered that their inflated earnings between 2009 and 2014 reached $1.2 billion. This financial scandal happened to see the resignation of top executives underlining audits’ role in ensuring corporate governance.
2. WorldCom (2002): Internal auditors found more than USD 3.8 billion of fraudulent entries. The company had been incorrectly booking line costs as capital expenditures and inflating revenues by various fictitious accounts.  It brought the company into bankruptcy and serious legal action against the executives involved.
3. AIG (2000): During the period from December 2000 to March 2001, auditors detected a series of fraud deals between AIG and Gen Re Corporation, where they jointly created phony reinsurance deals in order to enrich the loss reserves of AIG. Fines against the company were heavy, with lawsuits filed accordingly.

Distinguishing Features

Whistleblowing involves the reporting of specific wrongdoing, which oftentimes deals with ethical issues, while auditing is a more methodical process meant for review of records and procedures to identify and prevent discrepancies.  Whistleblowing cannot be anything other than reactive in nature, essentially personal action initiated on the basis of some overwhelming compulsion to expose misconduct.  Auditors are, however, practitioners with special roles assigned to them separate from those within the organisation and review organisational processes on a periodic basis for compliance as well as for improving overall performance.

Yet another important difference involves the outcome of each action.  Whistleblowing has immediate and, in most instances, dramatic effects on the whistleblower and the organisation, since change or repercussions normally occur immediately.  An audit’s results in most instances involve continuous improvement and attainment of compliance with little immediate effect.

Besides, publicity can also be used to differentiate these two actions: Whistleblowers may want to publicise their claims, particularly if an internal reporting system has failed them.  They often publicise issues in a manner that may raise great awareness and spur action.  Auditing tends to be one of those actions that usually occurs in private, where the findings are often reported internally to the management rather than with the public.

Enhance Workplace Integrity with Trustnet.Trade’s Confidential Whistleblowing and Audit Tools

Trustnet.Trade offers a user-friendly whistleblowing tool that allows for confidential and anonymous reporting of compliance violations.  It helps maintain workplace integrity and high ethical standards.  If you need an easy-to-use solution that ensures anonymity and supports two-way communication, Trustnet.Trade can assist you.

In today’s global business environment, Trustnet.Trade’s Business Partner Risk Analyses and Value Chain Risk Analysis transform how you verify partnerships.  Easily book online for valuable insights into your partners’ operations.  Our local experts conduct audits to ensure a thorough understanding of regulations and industry specifics.  Prioritise authenticity with Trustnet.Trade.  Don’t let distance hold you back.  Contact us today to start building secure partnerships.

Conclusion

Both whistleblowing and internal audits aim at making the workplace transparent and accountable.  Whistleblowing is based on individuals who would care enough and be able to report on issues concerning ethics and human-centred issues, such as harassment or safety problems.  While internal audits look deep into the financial and operational systems of a company for compliance with regulations and efficiency.

A company that genuinely supports and values both of these mechanisms provide a solid foundation for identifying and addressing the broad range of issues, thus establishing a culture of trust, safety, and accountability. As auditors and whistleblowers go alongside each other in an organisation, it goes well-equipped in meeting new challenges head-on and building a strong culture of ethics and positivity in the workplace.