Whistle-blowing lacks significance in India Inc.
- 13% of the respondents were fully compliant with the Companies Act 2013
- Only 22% of the respondents realized they had a ‘pressing need’ for a structured mechanism
Mumbai, August 26, 2014 – Whistle-blowing is the latest buzzword among Indian organizations but compliance to the policy is still low, states EY’s survey, ‘The whistle-blowing quandary: India Inc.’s journey from oblivious to obvious’. The survey reveals that while a majority of respondents assented to having a whistle-blowing mechanism, only 13% were fully compliant with the Companies’ Act 2013. It also stated that only 22% of the respondents had implemented the framework because they considered the structured mechanism integral to their business operations. While many organizations had a policy in place, half of the respondents offered only one channel for reporting of complaints – which is more a ‘tick in the box’ approach than actually reaping the real benefits of a whistle-blowing framework.
Arpinder Singh, Partner and National Leader, Fraud Investigation & Dispute Services said, “India Inc. still needs to make significant headway to benefit from an effective whistle-blowing framework. Today, regulatory measures are paving the path for sound governance practices; there are a series of metrics which need to intelligently converge for the mechanism’s success. The vigil mechanism may only be an element in the larger risk mitigation framework; however, our understanding of market dynamics has helped us gauge its significance, if implemented correctly. Going forward, it is necessary for the management to pay more attention to the intricacies of the framework through efficient monitoring, support and oversight and most importantly, establishing a robust fraud response plan.”
Shashi Kant Sharma, Comptroller and Auditor General of India (CAG) said, “India is a thriving business destination and there is a dire need for the industry to shoulder the responsibility for corporate ethics. Although we seem to be moving the needle toward greater compliance, it will be a while before we can see a change in mind-set, driven by good corporate governance.”
Third party expertise not a priority!
Many organizations undertake the responsibility of implementing and maintaining a whistle-blowing framework internally. While this may sound good in principle, it is also important that some critical aspects are dealt by the experts. According to the survey, only 32% of the respondents had outsourced the whistle-blowing mechanism to third party service providers. Contracting and leveraging the expertise of third party vendors makes the mechanism seamless, ensures greater confidentiality, and puts the whistle-blower at ease.
Hotlines lack the heroic punch in India – a contrast to global leading practices
Many global reports suggest hotlines as one of the most effective channels for a strong whistle-blowing mechanism. ACFE’s recently released ‘Report to the Nations on Occupational Fraud and Abuse’ has stated that organizations with hotlines were much more likely to catch fraud by a tip, which their data showed is the most effective way to detect fraud. However, our survey reveals that only half of the respondent organizations had implemented hotline as a channel of reporting.
Low clarity on the scope – Is there enough training imparted by organizations?
The success of a whistle-blowing framework is defined by a number of factors – scope of the content, awareness across ranks, reporting channels, subsequent handling of the complaint etc. However, the true test lies in the nature of complaints which arise and are flagged. 56% of the survey respondents indicated that less than 25% of the complaints reported the need for further investigations. This indicates that majority of the complaints received were not within the scope of whistle-blowing. Lack of clarity on the purview and inadequate training can be major deterrents in establishing an effective mechanism.
Automotive and telecom sectors fare better than others
Certain sectors such as automotive and telecom are able to derive greater benefits from implementing a whistle-blowing mechanism as compared to others. This appears because the organizations surveyed were led by global mandates and the nature of investments seemed to incorporate leading practices. Our survey stated that although only 50% of the companies in the automotive sector had a policy and mechanism in place, they had more evolved systems. Most of the salient features such as multiple reporting channels, fraud response plan, guidance on reporting, anonymity and safeguards against victimisation were prevalent. In the telecom sector, around 83% had a policy and mechanism, with a better success rate with complaints received.
About the survey
This survey was conducted during the period April 2014 to June 2014. The respondents included senior executives from business functions such as internal audit and legal and compliance, and presented a mix of Indian enterprises with domestic operations, as well as India subsidiaries of foreign multinationals in the UK and US. They operated in an extensive range of industries such as banking and finance, manufacturing, media and entertainment, IT/ITeS, pharmaceuticals, automotive etc.
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