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IAI Actuarial Core Principles · Business Finance · Corporate governance and the regulation of companies

A company discovers that an employee has raised, through its whistleblowing channel, a credible concern that senior managers are booking fictitious sales. Which response best reflects sound ethical governance?

The audit committee should oversee an independent investigation and protect the whistleblower from retaliation. Concerns about senior managers must reach independent directors, not the people implicated, otherwise the process is compromised and employees will stop reporting wrongdoing.

  1. AThe audit committee oversees an independent investigation while protecting the employee from retaliationCorrect
  2. BThe concern is passed to the managers named so they can respond first
  3. CThe employee is asked to withdraw the claim until the year-end audit
  4. DThe matter is kept within the sales department to protect the share price
  5. The employee is moved to another location so the issue is forgotten

Explanation

Whistleblowing policies work only if concerns reach people independent of those implicated and the reporter is protected. The audit committee, being independent, should oversee the inquiry. Informing the accused, suppressing the claim or transferring the employee undermines the process and may amount to retaliation.

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