SEC’s new whistleblower program is good for business: Here’s why

There’s a bit of a dilemma going on regarding the Securities and Exchange Commission’s new whistleblower program. Is this new program going to be good for businesses? Or will it severely disrupt internal controls that are already present?

The SEC recently made their first payout of nearly $50,000 to a whistleblower who helped prevent a multimillion-dollar securities fraud. Since the SEC program was established in August 2011, chief Sean McKessy said the office has been receiving about eight tips a day.

“The fact that we made the first payment after just one year of operation shows that we are open for business and ready to pay people who bring us good, timely information,” he said.

But the Institute of Internal Auditors raises a good point: With the SEC paying out big rewards like this, it’s encouraging employees who suspect fraud to go around the usual internal controls and go straight to the feds, producing a chilling effect that will slow down fraud investigations and resolutions.

A different view

While the IIA raises a good point, there’s another viewpoint: Rooting out instances of fraud, no matter how it’s done, is a good thing. And this new program can actually help businesses.

How’s that? Bill Sheridan at CPA Success says that now is the time for companies to tighten up their own internal oversight and make organizations more transparent and accommodating as possible for employees that suspect fraud.

This new SEC program should be a motivator to fix any lags or deficiencies in your internal reporting system. Consider adding incentives for employees who report valid concerns internally versus going to the feds.

Let us know what you think about the SEC’s new whistleblower program in the comments below.