On 18 December 2012, the Lok Sabha passed the much-awaited Companies Bill, 2012. According to clause 177 in the Bill, every listed company has to establish a vigil mechanism for its directors and employees to report genuine concerns in the prescribed manner.
A whistle-blowing mechanism not only helps in detection of fraud, but is also used as a corporate governance tool leading to prevention and deterrence.
Several companies have a whistle-blowing policy. However, it is not backed up by an adequate framework to make it an effective tool for fraud detection and prevention of fraud or misconduct.
According to our India fraud survey 2012, out of the 58% companies that witnessed fraudulent activities last year, 62% indicated that whistle-blowing tips helped in their detection.
While putting in place appropriate whistle-blowing mechanisms in their organizations, top management typically grapples with the following issues:
- Action to be taken: what action can be initiated based on the nature and seriousness of the issue reported?
- Executive time and involvement: issues that are “not serious” do take up senior executives’ time
- Potential misuse: concern around the potential misuse of the channel driven by personal agenda
- Adherence to laws/ regulatory guidance: do our policy/procedures adhere to the laws and regulatory guidance?
- Global best practices: how do we compare with global best practices?
- Effectiveness: how effective is the mechanism?
- What are the other companies doing?
How can we assist you
At EY, we can help you build and implement a robust-whistle blowing mechanism, formulate a fraud response plan, conduct awareness sessions and identify key gaps and areas of improvement.
Our services include:
Establishing a whistle-blowing mechanism
- Selection of the most suitable policy and mechanism
- Developing fraud response plan
- Assistance on constitution of cross-functional committee
- Advising on response action
Reviewing complaints and recommending response
- Advising on effective response action, including its scope and timeline
Conducting training and awareness sessions
- Preparation of roll-out strategy
- Conceptualization and development of training content for face-to-face and web-based training
- Delivering training — either to train trainers or the target audience
Conducting diagnostic review (assessment and enhancement)
- Understanding and reviewing existing policy and procedures
- Reviewing data related to complaints received, response action, remediation measures and reporting
- Identifying potential areas of improvement
- Recommending changes in line with industry practices and needs
Reviewing vigil mechanism to support independent directors
- Reviewing existing mechanism for existence, adequacy and functioning
- Reviewing sample cases reported through the mechanism
- Conducting a survey to assess whether any employee feels victimized
- Conducting interviews of management and employees independently
- Reviewing reports of internal investigation
- Review reporting done to the audit committee, board or regulatory body
For more details, download our brochure.