In the 1800s, it was called the “the Lincoln Law,” and it was a statute that was enacted to fight the widespread fraud by companies selling rotten food, sickly mules, and defective weapons to the Union Army during the Civil War. The law allows any private citizen to bring a lawsuit against another person or company, on behalf of the U.S. government.

In exchange for the effort, the government rewards the whistleblower with a significant portion of the government’s recovery. Usually, this is between 15 and 30 percent.

The law itself, called the False Claims Act, is rooted in thirteenth-century England under the tradition of qui tam, meaning “he who sues on our Lord the King’s behalf as well as his own.

The meaning, and intent, of such rules, laws, and regulations was, and is, to promote fairness and equality among all people. Fraud is a serious crime, and those who commit it are often in positions of power.

These laws provide a check on that power by giving ordinary citizens the ability to fight it. However, retaliation is a serious issue – one that corporations must deal with.

The Foundation For Corporate Policy

Most corporations that setup an attendance hotline to handle incoming whistleblower calls got the idea from federal and state laws, where whistleblowing is encouraged and even rewarded. A corporate program may also set up a special compliance division within the company that is largely autonomous from management – thereby protecting the division from corrupt management.

Mid-sized to large corporations might even employ a state regulator, or hire a third-party auditing company, to ensure compliance with the law.

But, one of the most serious obstacles to an effective whistleblowing program is the problem of retaliation. When an employee reports fraud of misconduct against a manager, there’s always a risk of the management retaliating against the employee. Retaliation could include demotion, suspension, and even termination of employment.

Because recent studies and surveys show that 90 percent of employees fear retaliation, compliance departments must set this as a top priority. Employees cannot be afraid to report fraud and misconduct, especially when it involves their manager. And, since about 60 percent of misconduct and fraud cases do involve management, with 20 percent or more involving upper management, the threat of retaliation is real.

In fact, some reports show that 1 in 5 employees that report fraud and misconduct are retaliated against – despite the laws in most states, and at the federal level, which prohibits this activity.

Relevant Statutes

Every state’s whistleblower statutes are a little different. But, each state that has them sets out specific rules and regulations for reporting, punishment, and procedure. For example, in North Carolina, those convicted can face fines of three times the amount of damages sustained by the State because of the acts of the convicted.

Why is this relevant for corporations? Because, corporate entities will want to structure their whistleblower programs so that they meet the minimum requirements set forth in the state statutes. It’s OK to exceed the minimum requirements of the law in many cases, but it’s not OK to fail to enforce the bare minimum.

By Susanne Knight

Susanne is a paralegal secretary with a keen interest in current affairs. An avid blogger, you can read her highly informative posts on a variety of business blogs.

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