Building a robust whistle-blowing mechanism

Transcription

1 Building a robust whistle-blowing Fraud Investigation & Dispute Services

2 On 30 August 2013, the much-awaited Companies Act, 2013 was published after receiving the assent of the President of India. According to Section 177 of the Act, every listed company needs to establish a vigil for its directors and employees to report genuine concerns in the prescribed manner. Following is a synopsis of provisions relating to the vigil in the Companies Act, 2013, along with the notified rules: Reference Provision Synopsis Sec 177 (9) Establishment of vigil Every listed company, or such class or classes of companies, as may be prescribed, to establish a vigil for directors and employees to report genuine concerns in such manner as may be prescribed Sec 177 (10) Safeguards against victimization Policy against victimization of persons using the Provide for access to Chairperson of Audit Committee in appropriate or exceptional cases Display policy on the company website Vigil to be included in Board s report Schedule IV Code for independent directors Ascertain and ensure that the company has an adequate and functional Ensure that the interests of individuals who use the are not prejudicially affected The notified rules issued by the Ministry of Company Affairs on 27 March 2014 extend this provision to companies that accept deposits from the public as well as to companies that have borrowed funds amounting to more than 0.5 billion from banks and public financial institutions. Other provisions in the notified rules with regard to a vigil : Audit committee or board to oversee the vigil Reclusion of audit committee member(s) in the event of conflict Access to audit committee chairman in exceptional cases Actions against frivolous complaints The provisions of the Section 177 are applicable with effect from 01 April The revised Corporate Governance norms of SEBI have also made existence of whistle-blower mandatory for listed Companies. The revised norms will be made applicable to all listed Companies from 01 October A whistle-blowing not only helps to detect fraud in organizations, but is also used as a corporate governance tool, which prevents and deters fraudulent activity. Several companies have whistle-blowing policies. However, these are not backed by adequate framework to make them effective tools in detecting and preventing fraud or misconduct. According to EY s India fraud Survey 2012, 58% of the companies surveyed witnessed fraudulent activities in % of these indicated that whistle-blowing tips helped in detection of the fraudulent activities. 1 Fraud and corporate governance: Changing paradigm in India, A report based on India Fraud Survey 2012, Ernst & Young,

3 Your concerns While putting in place appropriate whistle-blowing s in their organizations, top management typically grapples with the following issues: Executive time and involvement Issues that are not serious taking up senior executives time Action to be taken? What action can be initiated based on the nature and seriousness of the issue reported? Potential misuse Concern about potential misuse of the channel, driven by personal agendas Compliance with laws/ regulatory guidance Concern about compliance of policies or procedures with laws and regulatory guidance Global best practices Concern about compliance of policies or procedures with global best practices Effectiveness Concern about effective of the What other companies are doing?

4 Our experience We have assisted our clients with the following: Developing or reviewing codes of conduct and related policies Developing or reviewing their whistle-blowing policies and related procedures Formulating fraud-response plan Implementing their whistle-blowing s (either through third-party service providers or by developing these internally) Strategizing their training initiatives and developing content for face-to-face and web-based training sessions Conducting training sessions for their management teams and employees Conducting train the trainer sessions Assisting management review and decide on the way forward for complaints received through their whistle-blowing s Our clients include: 1. A leading airline 2. A media and entertainment company 3. A leading newspaper brand 4. The finance arm of an automobile manufacturer 5. A pharmaceutical company 6. A leading global information technology company 7. A leading manufacturer of consumer electronics

5 How can EY assist you? Your need Challenges EY s solution Our assistance Establishing a whistle-blowing What is the right policy? What is an appropriate? Who should be the owner? Should a whistle-blowing platform be outsourced? How should reporting take place? Assisting in establishing whistle-blowing s Assisting in selection of the most suitable policy and Helping in development of a fraud response plan Providing assistance on constitution of cross-functional committee What are the protocols that can be implemented for escalation and response action? Advising on response action What are the reporting protocols that can be implemented? Dealing with complaints What action should be initiated if a complaint is filed? Assist in reviewing complaints and recommending response Providing advice with regard to effective response action, including its scope and Timeline Spreading awareness Who should be trained? What should be the strategy implemented? How can an employee be reinstated? Conducting training and awareness sessions Assisting in preparation of roll-out Strategy Providing assistance in conceptualization and development of training content for face-to-face and web-based training Delivering training either to train trainers or the target audience Reviewing existing policy or How do you ensure that your existing policyand is effective? How do you resolve challenges related to effective response action, including investigation, disciplinary action and remediation? How do you ensure that excessive time is not spent by the executive (managerial) team on such activities? How do you identify complaints that could be driven by a personal agenda or malafide intent? Conduct diagnostic review (assessment and enhancement) Understanding and reviewing existing policy and procedures Reviewing data related to complaints received, response action, remediation measures Reporting Identification of potential areas of improvement Recommending changes in line with industry practices and needs Review to assist declaration by independent directors According to Schedule IV of the Companies Act 2013, Independent Directors are required to: Ascertain and ensure that a company has an adequate and functional whistleblowing Reviewing vigil to support Independent directors Review reporting done to the audit committee, board or regulatory body Ensure that the interests of the employees using the are not prejudicially affected Reviewing existing for the existence, adequacy and functioning of the Reviewing sample cases reported through the Conducting surveys to assess whether employees feel victimized Conducting interviews of management and employees independently Reviewing reports of internal investigation

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