EMERGING TRENDS AND ISSUES THE LANDSCAPE OF WHISTLEBLOWING: A PERSONAL AND PROFESSIONAL PERSPECTIVE

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1 EMERGING TRENDS AND ISSUES THE LANDSCAPE OF WHISTLEBLOWING: Discover new whistleblower rules and regulations from an audit executive and fraud examiner who has blown the whistle. This course will describe audit and continuous auditing techniques with personal anecdotes to emphasize comprehension, application, analysis, and synthesis of whistleblower motivation and ethical conundrums. TIMOTHY HEDIGER, CFE, CIA, ACDA Owner and Consultant Polaris Risk Services, LLC Apex, NC Mr. Hediger is consultant and owner of Polaris Risk Services, LLC, a consulting enterprise based in Apex, North Carolina. Mr. Hediger handles a range of fraud, forensics, and internal control inquiries from his clients in government, publicly regulated industries, retail, financial services, and high-tech industries. He is a Certified Internal Auditor, Certified Fraud Examiner, Certified in Control Self-Assessment, an ACL Certified Data Analyst, and a U.S. Department of Defense Information Assurance Security Officer. Mr. Hediger graduated from the University of California Santa Barbara in 2000 with a bachelor of arts in business economics with an emphasis in accounting. While studying at UCSB, he worked for a Fortune 25 retailer, Costco Wholesale, in their internal audit department, specializing in inventory, data analytics, and post-payment recovery audits. He then worked for Deloitte and Touche, specializing in Sarbanes-Oxley compliance, revenue assurance, and ERP conversion reviews, under the management of IIA Chairwoman and Deloitte Partner, Patricia Miller. Beyond his involvement in the industries noted above, Mr. Hediger has extensive experience in the U.S. False Claims Act, the U.S. Truth in Negotiations Act, the U.S. Federal Acquisition Regulation, and especially whistleblower complaints because he was a whistleblower. During his tenure as the director of internal audit at PRIDE Industries, he repeatedly informed PRIDE management of operations, compliance, and financial malfeasance with their operations at Fort Bliss, Texas, to no avail. Mr. Hediger and coworker Lois Perez reported their information to federal authorities and were subsequently fired for their actions. From his experiences at PRIDE, he has firsthand and intimate knowledge in federal civil and criminal complaints, investigation techniques, wiretapping and recording protocol, data mining, analytic procedures, and rules of evidence. Mr. Hediger a proud member of the Association of Certified Fraud Examiner s Executive Advisory Council. He is also an active member of the Institute of Internal Auditors, the Information Systems Audit and Control Association, the Association of Certified Fraud 2012

2 Examiners, the Association of Certified Anti-Money Laundering Specialists, and the North Carolina Certified Public Accountants Society. He has been published in Fraud Magazine, The Sacramento Bee, El Paso Times, and other accounting trade publications. Mr. Hediger was born in Fresno, California, and lives in Apex, North Carolina, with his wife, Melissa, and daughter, Norah Rose. Mr. Hediger can be reached at Polaris Risk Services, LLC, PO Box 68, Apex, NC 27502; Association of Certified Fraud Examiners, Certified Fraud Examiner, CFE, ACFE, and the ACFE Logo are trademarks owned by the Association of Certified Fraud Examiners, Inc. The contents of this paper may not be transmitted, re-published, modified, reproduced, distributed, copied, or sold without the prior consent of the author. 2012

3 Introduction THE LANDSCAPE OF WHISTLEBLOWING: As an audit executive whistleblower, my family and I have had to go through very, very hard times to be with you today. I have had to sacrifice my career to do the right thing and bring to light malfeasance that my not-for-profit organization did to people with disabilities and wounded warriors coming back from Iraq and Afghanistan. Unfortunately, I have seen things as an audit executive that I never want you, as a fraud professional, to see but you might. I never want you to go through my experience but you might. I never want you to need to wear a wire for the federal government to expose malfeasance in your company but you might. Finally, I never want you to be unprepared when you interview a potential whistleblower but I can guarantee you that you will. I will be talking about my personal and professional story with you today. But, more important, I want to share with you tips and techniques on how to effectively interview potential whistleblowers. Companies and governments need whistleblower-interview training because of expanding whistleblower protections most notably in the U.S. Dodd-Frank Act. The Story Often we look at fraud from a transactional perspective, looking at only employees or customers, documents or signatures, data or control logs. While that is a proper way to look at malfeasance, what happens when the malfeasance comes from management? What happens when the fraud is systemic in your organization? What do you do? To whom do you turn? These questions and many, many more are what we will be talking about today

4 THE LANDSCAPE OF WHISTLEBLOWING: Our internal audit team was responsible for implementing the AICPA Risk Assessment Standards and it was during this process that we discovered the first false claim. By the time the case was complete, there were five false claims, including false certification, two different contract overcharges, Truth in Negotiations Act violations, bribery, and several internal whistleblowers. We took these issues to management 17 different documented times but to no avail. One of these disclosures included going to the external auditors under my SAS 99 requirements. The partner-in-charge then went to management, which was the point at which the company began the process of terminating the department. We found great solace in the following quotes from the ACFE and the IIA: CFEs shall conduct themselves with integrity, knowing that public trust is founded on integrity. CFEs shall not sacrifice integrity to serve the client, the employer, or the public interest. ACFE, Professional Standards for Certified Fraud Examiners The internal audit activity must be free from interference in determining the scope of internal auditing, performing work, and communicating results... If independence or objectivity is impaired in fact or appearance, the details of the impairment must be disclosed to appropriate parties. The nature of the disclosure will depend upon the impairment. IIA Attribute Standards, Sections 1110.A1 and

5 THE LANDSCAPE OF WHISTLEBLOWING: The main theme from the ACFE and IIA standards is that we, as fraud examiners, are responsible to the public trust and should work through the process to its logical conclusion. How Should I Interview a Whistleblower? During my work with the federal government, I disclosed the issue, fully cooperated with their requests, wore a wire, and brought the case to a successful conclusion. But, at first, the special agents were apprehensive to use my information. One of my passions in the past couple of years was to find a way to develop a new and better understanding to the law enforcement and internal audit community. If there is a simple piece of advice, it can be summed up as, First ask true or false? and then right or wrong? Judgments of whistleblowers and their motive should be placed aside until you determine the facts of the fraud or false claim. Note that the motive should be placed aside, not ignored. It is very important to ascertain the facts and keep cool during a whistleblower interview; jumping to conclusions or accusations will destroy the professional relationship you are trying build with your informant. This point is key because your whistleblower will be emotional and might carry the conversation into places that do not have a relationship to the case. In Staying Focused During the Interview and other interviewing seminars by Don Rabon, he has stated that changing the subject in an interview is a red flag to an investigator of deception. This is not necessarily the case with whistleblower investigations. Think about these emotions and facts: Your informant might have multiple frauds to disclose. A supervisor might have threatened your informant s financial or physical security

6 THE LANDSCAPE OF WHISTLEBLOWING: Coworkers might have blown a whistleblower s cover and are retaliating. Keep these in mind before jumping to conclusions on a whistleblower s motivation. Finally, don t make simple mistakes in your whistleblower investigation! Their identity should be protected by your company or investigative policy and it may be protected by law. Don t make this mistake, described by the Wall Street Journal, Source s Cover Blown by SEC : online.wsj.com/article/sb html?KEYWORDS=whistleblower Conclusion Blowing the whistle as an audit executive was the most difficult thing I have had to do as a professional. The effects on my family have been enormous, but I do not regret my decision at all. The guidance that the ACFE, IIA, and my mentors have given my team and me has been tremendously important in specific guidance to move forward in the case