‘The examination of the effects of ethical culture on the working of the whistleblowing procedure and its implementation process’

‘The examination of the effects of ethical culture on the

working of the whistleblowing procedure and its

implementation process’

Abstract:

After an in-depth case study done in an accounting firm, it can be affirmed that ethical culture influences the working of the whistleblowing procedure and its implementation process. The

different aspects of culture, examined by the CEV-model of Kaptein, all influence the whistleblowing procedure in a different way. The most striking finding is that most respondents would ‘work around the ethics hotline’: they would either discuss it with their superiors, or call a

compliance officer if they felt the need to report wrong doing. One of the reasons for this behaviour is the low awareness of the whistleblowing procedure by the organizational members.

Key words: whistleblowing procedure, implementation, ethical culture.

By:

Dieuwke Adema,

Supervisor:

Pieter Jansen

University of Groningen

Faculty of Economics and Business

Department of Accounting

Msc Controlling (Accountancy & Controlling)

30th of July 2012

~ 1 ~

Ethical behaviour has become incredibly important in doing business (Moore, 2003; Pawlowski & Hollwitz, 2000). Whistleblowing is one of the most popular debated issues in business ethics, even though whistleblowing is a relatively modern concept (Hayden & Caspersz, 2011). The term whistleblowing comes from the British policemen who ‘blew their whistle’ whenever they saw a crime happening: this alerted other law enforcement officers and the general public of that crime (Dasgupta & Kesharwani, 2010). Even though the police had set out controls to prevent crime, the blowing of the whistle was still a necessary detection mechanism. It is in the organisation’s best interest to take adequate measures in order to prevent wrongdoing. However such systems can never avoid wrongdoing entirely (Kaptein, 2011). Crimes in business occur just as frequently as crimes outside of business. Failing to put the right controls in action invites catastrophe

(Callahan, Dworking, Fort & Schipani, 2002).

Companies sometimes underestimate the risk of fraud. Risk can be very hard to quantify, even quantifying the probability of a small difficulty can be hard (Plous, 1993). The problem lies in the ‘it will never happen to me’-thought (Plous, 1993). In general, people think something positive is more likely to happen to them than something negative (Irwin, 1953; Irwin & Metzger, 1966). Getting caught for committing fraud is seen as a negative event. This causes the committer to think that the likelihood that he will be caught lower. But it is also a negative event for the organisation, to find out that fraud has been committed internally. This causes the organisation to think the perceived chance of discovering fraud is quite low.

Approximately one in five organisations a year will be confronted with large fraud, one in a thousand employees a year will commit fraud and the costs of fraud are five to six per cent of the revenue of all companies globally: a big loss of value at relatively high risk (Schimmel, 2004). Fraud is a process risk that is connected with participating in business processes (Schimmel, 2004). Where there is human involvement, there is a risk of fraudulent behaviour. The definition that is used in this research is ‘an intentional misrepresentation of reality’, based on the elements of the definition of Schimmel (2004): ‘intentional’, ‘incorrect’, ‘the abuse of trust’ and

‘unlawful’. Stealing also falls under that definition because while the committer removes

resources, he usually tries to make it look like it is not missing. Whenever company numbers are manipulated, or other vital parts of the company are presented different from reality, it is seen as fraud.

Early detection of fraudulent behaviour can prevent extreme damage. In the organisations WorldCom and Enron, Cynthia Cooper and Sherron Watkins respectively blew the whistle (Dasgupta & Kesharwani, 2010). Both companies declared bankruptcy not long after the fraud was discovered. However, if the fraud had been discovered at an earlier stage, recovery might have been possible. Whistleblowing can in fact be very beneficial for companies. Whistleblowers have played a big part in providing crucial information from the lower levels of the organisation to the higher levels of the organisation (Ting, 2008). Shawver (2011) states ‘we need more whistleblowers’, indicating that whistleblowers have helped root out many frauds.

Organisations are known to put a lot of effort in creating a good image (Burnes, 2009; Zhao, 1999; Morgan, 1943) and to have this image harmed by negative news such as a detection of fraud is highly unfavourable (Renkema & Hoeken, 1998). External whistleblowers usually go to the media or the government (Dasgupta & Kesharwani, 2010), exposing the organisation to the

~ 2 ~

mercy of the public. The public will seek someone to blame (Benoit, 1995). Usually the organisation gets the worst of it. It can therefore be very beneficial to encourage internal

whistleblowing. Not only can it work in a preventive manner when fraud is detected, it can also prevent the negative effect on the organisational image.

If firms were to self-correct themselves and thereby not being exposed to the media in a negative manner, a lot of costs would be saved (Miceli et al., 2009). A good functioning internal whistleblowing system can help prevent negative news about the organisation reaching the

media. But how should the implementation of a whistleblowing procedure go? When do we know a whistleblowing procedure is working as we intended? How should it be monitored? When the Sarbanes Oxley Act of the year 2002, “SOX”, was introduced, a whistleblowing procedure became mandatory for listed companies (Dworkin, 2007; Sotter, Kuner & Simpson, 2005). However, SOX is vague about the implementation. There are tools situated in SOX, but there is no clear implementation plan or guideline to when the whistleblowing procedure is embedded correctly in the organisation. However, the implementation is crucial, Miceli et al., (2009) state ‘whether SOX will have a supportive effect on the incidence of whistle-blowing and on

termination of organisational wrongdoing may well depend on how well it is implemented’, saying that the implementation of the whistleblowing procedure may very well be a determinant for its success.

So all there is to ensure a good implementation, is to rely on is the so called ‘best practises’. The article of Bolt-Lee, Farber and Moehrle (2011) summarises important academic findings and observations. They recommend ‘that internal company policies and procedures be continually reviewed and updated to ensure that employees feel they can bring potential irregularities to light without fearing for their career or personal safety’, which implies that the development of the whistleblowing procedure does not stop after implementation. Miceli et al., agree that

implementing a whistleblowing procedure alone is not enough. After it is implemented, managers should monitor the success of the program and change the program where needed. Thereby deducting that the implementation is more than installing the ‘ethics hotline’, following the terminology used in SOX, but it also encounters for example the raising of awareness of the employees that have the potential to use the tool. In the article of Rosenberg (2004) there are a few ‘practical suggestions’, which are useful when implementing a whistleblowing procedure. Dyck, Morse and Zingales (2010) argue that monetary incentives can play an important part in an employee whistleblowing procedure, thereby arguing that giving financial rewards to

whistleblowers will increase their willingness to blow the whistle.

But also within the same organisation, there can be problems in implementing good whistleblowing systems over countries. There might be bumps in the road when implementing the procedures described in SOX. In Germany, Wal-Mart experienced some problems with the implementation of the whistleblowing mechanism. Wal-Mart Germany refused to implement such a hotline (Scotter et al., 2005). The reason why they were unwilling to implement the hotline? In Germany there needs to be a council’s consent in order to implement an anonymous telephone hotline (Scotter et al., 2005). So as we can see, the implementation of standards used in the USA will not always work on subsidiaries in other countries. The simple copying of

mechanisms is more difficult than it appears at first sight.

In the research described above, the company culture was expected to be quite similar, but the country culture differed. There were cultural differences between how far the management authority went. Similarly, it can be expected that whenever a whistleblowing procedure is

~ 3 ~

implemented in several companies in one country, there will be differences in organisational culture among those companies. There is not one method that will always guarantee success, since companies can differ so much. Whistleblowing is in that sense not different from implementing a balanced scorecard or activity based costing for example, which needs to be customised as well.

Culture is a concept that is used with many meanings and in many contexts in the scientific literature. Sometimes it is even used as a rest category for undefined effects. However, culture does exist and is measureable, as long as the right measurements are used. Hofstede has defined country culture (Schneider & Barsoux, 2003), Scheffknecht (2011) and Jackson (2011) did research on organisational culture. Kaptein (2011) has developed a model to measure ethical culture, a part of organisational culture. Later in this paper, I will go into more depth about the different types of culture and in particular ethical culture.

When a whistleblowing procedure is developed, I expect there is an influence of culture on that development process, because organisational culture influences the implementation of new systems (Palanisami, 2008). The act of whistleblowing is influenced by the culture in the

organisation as well (Kaptein, 2011). Ethical culture is a part of organisational culture. The goal of this study is to gain more insight in the influence of organisational culture on that development process, or more specifically ethical culture. So the main research question of this paper is ‘How does ethical culture influence working and the process of implementing a whistleblowing

procedure?’

There is a lot of research done about what influences whistleblowing, such as the types of wrongdoing (Somers & Casal, 2011; Near, Rehg, Van Scotter & Miceli, 2004), the type of whistleblower (Dyck, Morse & Zingales, 2010), the interaction between the whistleblower and the wrongdoer (Grundlach et al., 2003), the encouragement of whistleblowing (Miceli, Near & Dworkin, 2008; Waples, 2010), the characteristics of the firm (Bowen, Call, Rajgopal, 2010) and so on. However, to my knowledge, there is a lack of research that investigates the process of implementing a whistleblowing procedure and factors that are of influence on the implementation and working of such procedure. There is an essay that argues the effect of Austrian laws on the implementation of a whistleblowing procedure (Knyrim & Trieb, 2011), but empirical evidence is still lacking. Therefore, I think it would add to the knowledge of the act of whistleblowing to go into more depth about the implementation and the working of the procedure.

Based on a case study, this study aims to give theoretical generalisation on how

whistleblowing procedures are influenced by ethical culture. Kaptein (2011) has researched the influence of ethical culture on the employee’s response to observed wrongdoing, but has not investigated factors that can be of influence on the implementation of the whistleblowing procedure or the working of the procedure. Also, Kaptein (2011) researched ethical culture with questionnaires, whilst this study tries to go more into depth through a case study. In the paper, Kaptein (2011) states that more in-depth research of the CEV-model is needed. This study has practical relevance because it can be of use to companies to know how their ethical culture influences the development and working of a whistleblowing procedure.

This article is structured as follows. First the implementation of the whistleblowing procedure will be discussed, then the act of whistleblowing in itself following with ethical

organisational culture. In the methodology the research approach is discussed, following with the presentation of the results. I will finish with presenting the conclusion, suggestions for further research, give some practical suggestions and the discussion of the results.

~ 4 ~

Implementing and working of the whistleblowing procedure

Since 1985, the definition of whistleblowing Near and Miceli have developed is used continuously in whistleblowing research. The definition they give is: ‘the disclosure by

organisational members (former or current) of illegal, immoral, or illegitimate practices under the control of their employers, to persons or organisations that may be able to effect action’ (Near & Miceli, 1985:4 In: Grundlach, Douglas & Martinko, 2003; Dasgupta & Kesharwani, 2010). The definition suggests there are only two parties involved: the whistleblower and the wrongdoer (Grundlach et al., 2003). In 1993, Near, Dworking & Miceli added the third person: the party to whom the wrongdoing is reported (Dasgupta & Kesharwani, 2010). If the party to whom the wrongdoing is reported, is inside the organisation, for example a manager, the complainant is called an ‘internal whistleblower’, if the party is outside the organisation, for example the government, the complainant is called an ‘external whistleblower’ (Dasgupta & Kesharwani, 2010).In this paper the focus lies on the internal whistleblower.

For the implementation of the whistleblowing procedure the clearest guideline findable is SOX, already briefly named in the introduction. In the Sarbanes Oxley Act of 2002, it is

explicitly stated that in order to comply, a whistleblowing procedure is mandatory (Dworkin, 2007; Rosenberg, 2004). There are three sections dedicated to whistleblowing, section 806, 301 and 1107. The most important is 806, according to Dworkin, (2007). This article is about the protection of the whistleblower, whereby the correctness of the whistleblowing is not important. Section 301 requires a channel for anonymous whistleblowing and section 1107 ‘imposes penalties on companiesor individuals that knowingly and intentionally retaliate against a whistleblower who gives truthful information about any federal offense to a law enforcement officer’ (Dworkin, 2007: 1763-1764).

As said, SOX does not give any clear guidelines, neither are best practises much help. But information can be drawn from other sources. For example, in the change literature,

implementation processes are researched thoroughly. We have learned from the change literature that change comes in stages: it is not suddenly there (Anderson, 1995). Another lesson from the change literature is that the system has to work in the organisational context and requires behavioural changes of organisational members (Shields, 1995). The system cannot be seen independent of the context. Shields (1995) argues that organisational culture could have an effect on the implementation of activity based costing (ABC), but leaves it up to further research to explore that area.

But the implementation of for example a balanced score card or ABC differs in such a way from the whistleblowing procedure that the working of its function cannot always be discovered by the amount of use. This will be the case with the implementation of a new cost system, people are forced to take part in the new system. So there is not an easy way of measuring its success. The change literature of cost systems is focused on the system as a decision making tool, and integrating it with reward systems (Anderson, 1995). Whistleblowing is not a tool for decision making or rewarding. So the literature on ABC or the balanced scorecard for example, both well researched systems, cannot teach us everything about implementation processes that is needed to know. It provides us with a general idea of how it works, but is not specific enough to teach us all there is to know.

~ 5 ~

Then, we come to the working of the whistleblowing procedure. ‘A whistle-blowing

decision is fraught with ethical, cultural, personal and professional ramifications’ (Hwang, Staley, Chen & Lan, 2008: 505). Take for example by the perception of right and wrong (Hwang et al., 2008).The perception persons have of the same situation can differ: the individual’s mind is very selective (Bruner & Postman, 1949). Even when respondents are asked to identify an odd playing card, for example a black card of hearts, it becomes evident that what the respondents report they see depends critically on the cognitive and motivational factors. The majority says it is something else than it really is: a normal red card or a black card of spades (Plous, 1993). This implies that individuals can perceive situations differently. For example, a situation which is perceived ethical by one employee might be perceived unethical by another. It all depends on the selective perception of the individual, based cognitive and motivational factors. According to Plous (1993) it would be useful to ask yourself a few questions before making an important judgment or decision. For example: ‘Am I motivated to see things a certain way?’, ‘What expectations did I bring into the situation?’ and ‘Would I see things differently without these expectations and motives?’ (Plous, 1993: 21). This can help rule out the prejudgments.

According to Lippmann (1978): “We do not first see, then define, we define first and then we see”. But also after a certain event has taken place, the psychological attitude is still open to change. Cognitive dissonance is the change in attitude that follows the behaviour that is displayed (Plous, 1993). For example when someone has bought a plane ticket to New York, the

experienced likelihood that the flight he just booked will crash has decreased. Simply because we experience the likelihood that a random plane will crash to be higher than the likelihood that the plane we are about to board will crash.

It works the same for fraudulent behaviour, when someone has committed fraud, or has witnessed someone committing fraud, there is an immediate judgment by the seer. However, that ‘judgment’ is still open to change. Grundlach et al., (2003) discovered that wrongdoers can be very effective in the impression management tactics they use to manipulate whistleblowing decisions. The attributions the potential whistleblowers make, the impression management the wrongdoers use and the emotions the potential whistleblowers feel, are of great influence on whether or not the decision is made to blow the whistle (Grundlach et al., 2003). Herby I would like to stress that ‘ethics’ is not a rigid concept, whether something is perceived ethical varies per situation and person and this perception can be influenced by the others.

In detecting wrong-doing in organisations, employees are critical (Kaptein, 2011). They are the ones that are the closest to their colleagues, not the employers or managers. In a recent

research, it turns out that 25% of all frauds were reported by employees (Kaptein, 2011). But before an employee will even consider blowing the whistle, employees must perceive a situation or a persons’ behaviour as ‘wrong’. The employee must see that behaviour as incompatible with their or the organisational values. In that, the organisational culture can play a major part. The company’s culture sets the boundaries for what is allowed and what is not. They implicit and sometimes more explicit show the employee what is seen as fraud and what is seen is compatible with the organisation, boldly said. Simons (1995) has described the ‘boundary system’, which states very clearly what should not be done: the organisational brakes. What Simons (1995) emphasizes is that the attitude employees in the higher levels in the company hierarchy have works as an example for all the employees. In other words: the tone at the top is important.

When the whistleblowing procedure is implemented, the employer can play a part by supporting or discouraging whistleblowing (Grundlach et al., 2003). People in general are not

~ 6 ~

very keen on reporting bad news or to criticise others openly. However, when employees are especially assigned to report a problem, when employees are able to file a report anonymously or if the organisational climate is conducive to reporting bad news, the likelihood of sharing

negative information with managers increases (Waples & Culbertson, 2011). In order to create a healthy climate for whistleblowing, according to Waples & Culbertson (2011), trust in

management, a climate that encourages reporting without the fear of punishment and appropriate responses to reported issues, are crucial. These are all elements essential for good organizational ethics.

Ethical culture

The influence culture has on social systems such as organisations, has been recognized not only by research in psychology, sociology, business and anthropology, but also in less related fields such as accountancy (Gray, 1988). But what exactly is culture? In the literature there is a distinction between ‘ethical culture’, ‘country culture’ and ‘organisational culture’. Hofstede is famous for his work on country culture, the dimensions he has developed to distinct between country cultures have been used frequently over the years and still is, albeit a few corrections (Schneider & Barsoux, 2003). Individualism/collectivism, masculinity/femininity, uncertainty avoidance and power distance are the four value dimensions of a culture that Hofstede identifies (Schneider & Barsoux, 2003; Jackofsky, Slocum & McQuaid, 1988).

According to Scheffknecht (2011) and Jackson (2011) there are three different lines of research in organisation culture research: integration, differentiation and fragmentation. The integration perspective consists of the thought that organisational culture is characterized by consistency, clarity of the values throughout the organisation and organisational wide consensus: the cultural values are widely integrated (Scheffknecht, 2011; Jackson, 2011). The differentiation perspective views the organisation as ‘composed of overlapping, nested subcultures that coexist in relationships of intergroup harmony, conflict or indifference’ (Scheffknecht, 2011: 75): the culture is not interpreted the same amongst the organisational members (Jackson, 2011). The fragmentation perspective centralises around the concept ‘ambiguity’, the goal of the researchers is to make sense of the culture by untangling the mystery (Jackson, 2011; Scheffknecht, 2011). The different perspectives of organisational culture are used to examine cases (Booth, Clark, Delahaye, Procter & Rowlinson, 2007).

Ethical culture is part of organisational culture. However, it specifies to the ‘ethical behaviour’ and the ‘awareness of ethics’ of the organisational members. Since the 1930s there has been a lot of research conducted on business ethics (DeKay, 2011). Back then, business ethics and ethical behaviour were merely referred to as behavioural traits, for example honesty,

accuracy and sound judgement (DeKay, 2011). Later on, research was elaborated with a few of the ‘big 5 traits’ that would influence ethical behaviour (McFarran, Aquino & Duffy, 2010). But up to now, according to Kaptein (2011) the only model measuring ethical culture in an

organisation that is empirically tested, is the Corporate Ethical Virtues Model (CEV Model). The virtues are based on a qualitative analysis of 150 diverse cases of wrongdoing (Kaptein, 2011). A corporate ethical virtue is one of the dimensions of ethical culture that either discourages

unethical or promotes ethical behaviour. The dimensions of ethical culture are: clarity, the congruence of local management and congruence of senior management, feasibility,

~ 7 ~

supportability, transparency, discussability and sanctionability. In order to measure the effect of culture on the whistleblowing procedure, the CEV model is used.

The main research question of this paper, ‘How does ethical culture influence the process of implementing and working of a whistleblowing procedure?’ falls apart in eight different

questions, because ethical culture is measured by the CEV model. I combined the second and third dimension of the CEV-model, congruence of local and senior management, because they are both about the same thing but at a different hierarchical level in the organisation. Also, not all organisations have both kinds of management directly influencing the employees. The research questions are presented below.

Clarity

Clarity is the first cultural dimension in the CEV model and is described as the extent to which principles, norms and values, in other words ethical expectations, are understandable to

employees (Kaptein, 2011). According to Greenberger, Miceli & Cohen, (1987) operationalizing the clarity of certain standards that define wrongdoing can be difficult, mostly due to different perceptions of what is right and wrong (Hwang et al., 2008). By implementing a whistleblowing procedure, it is important for employees to know what is allowed, and what is not. Otherwise, how will they be able to blow the whistle at the right time? If it is very clear what is allowed by culture it is expected this will affect the implementation of the whistleblowing procedure. Research Question 1a: How does the ethical culture dimension clarity influence the process of implementing and working of a whistleblowing procedure?

Congruence of local and senior management

The second and third dimension consist of the congruency of the management towards the ethical standards. Bluntly said, it means that whether management, either local or senior, behave

according to the organisational standards they set out for all employees (Kaptein, 2011). This is important, because managers function as role models for the lower levels in the organisation. The tone at the top is displayed by the leaders of the company. However, it should be taken into account that the most influential person in the organisation is not always the CEO. The somewhat lower ranks can be very influential as well, or even more influential. But the culture displayed at the top of the company leads the organisation: they ‘model’ the behaviour of the rest of the organisation and form a reference (Trompenaars, 2003). By the implementation of new systems, the support of management is crucial (Sharma & Yetton, 2011). Since this display of behaviour serves as a model for the rest of the organisation, it is expected that it influences the process of implementing the whistleblowing procedure. And therefore:

Research Question 1b: How does the ethical culture dimension congruence of local and senior management influence the process of implementing and working of a whistleblowing procedure?

~ 8 ~

Feasibility

The fourth dimension is feasibility, which basically means whether there are enough resources, time, budgets, equipment, information and authority available in order for employees to fulfil their responsibilities (Kaptein, 2011). Pressure is one of the three elements that causes fraud according to Schimmel (2004). He represents three elements, referring to it as the fraud triangle. These three elements are, pressure, opportunity and rationalization (Schimmel, 2004; Ramos, 2003). In order for fraud to be committed, it is essential that there is pressure to use the opportunity for fraud, whereby the resulting action must be susceptible for rationalisation

(Schimmel, 2004). These elements can be compared to the elements needed to make fire: oxygen, fuel and inflammation (Schimmel, 2004). When one of the elements is absent, the likelihood of creating fire will be distinct. When employees are put under pressure, which can for example be time pressure or financial pressure (Albrecht, Albrecht & Albrecht, 2008), it increases the likelihood of fraud commitment by creating a reason for the fraud. In an organisation with enough resources available, there is less pressure. In that culture the reason to commit fraud in order to release work pressure, becomes absent. So the feasibility can influence the amount of fraud, but does feasibility also influence the development of a whistleblowing procedure?

Research Question 1c: How does the ethical culture dimension feasibility influence the process of implementing and working of a whistleblowing procedure?

Supportability

The next cultural dimension is supportability. It refers to the amount of encouragement from the organisation to employees to identify themselves with the ethics of the organisation (Kaptein, 2011). When employees feel very comfortable with the ethics of the organisation, they can feel more threatened when others cross the boundaries of the ethical standards (Kaptein, 2011). When implementing a whistleblowing procedure it helps when employees are already very focused on what is right and wrong and feel like they comply with the business ethics. Then people will recognize atypical behaviour sooner. But how exactly does it influence the implementation of a whistleblowing procedure? Therefore:

Research Question 1d: How does the ethical culture dimension supportability influence the process of implementing and working of a whistleblowing procedure?

Transparency

The dimension of transparency refers to the visibility of wrongdoing and the consequences of wrongdoing to those who can take actions internally (Kaptein, 2011). Internal reporting, for example whistleblowing, is a way to improve internal transparency (Kaptein, 2011). The higher the transparency of the organisation, the more employees will think others see or are aware of the wrongdoing too (Dozier & Miceli, 1985). When others are already aware, why should they report it? And why would they need a whistleblowing procedure in the first place when wrongdoing is visible anyways?

Research Question 1e: How does the ethical culture dimension transparency influence the process of implementing and working of a whistleblowing procedure?

~ 9 ~

Discussability

The seventh dimension of the CEV model discussability refers to the extent ethical issues are discussable internally (Kaptein, 2011). Ethics is often not the first subject discussed by the coffee machine internally. As said before, employees will not speak up when they are sensing that managers do not welcome complaints (Miceli, Near, & Dworkin, 2009). Whistleblowing is nothing else than communication, in this case reporting wrongdoing (Kaptein, 2011). When an employee is reporting wrongdoing, this is not seen as positive news. In an organisation in which ethics and the violation of ethics are discussed internally, this could affect the implementation of a whistleblowing procedure. It could be that, because ethics are discussed often, people will discuss violation of the rules internally. Then, the need for a whistleblowing procedure is lower and people might perceive that it is unnecessary. Then, discussability might affect the process of implementing a whistleblowing procedure negatively.

Research Question 1f: How does the ethical culture dimension discussability influence the process of implementing and working of a whistleblowing procedure?

Sanctionability

The last dimension is sanctionability. Sanctionability is about the perception of employees, whether they think unethical behaviour will be punished and ethical behaviour will be rewarded (Kaptein, 2011). If wrongdoing is not punished, employees might think it is acceptable (Kaptein, 2011). Sanctionability can play a role in implementing a whistleblowing procedure because when employees think certain behaviour will be punished, they might be less likely to use the system. If they already think that fraudulent behaviour will be punished without them reporting it, they might think the organisation is self-serving, not needing a whistleblowing procedure. Contrarily when employees think unethical behaviour will not be punished anyways, why would they use the whistleblowing tool?

Research Question 1g: How does the ethical culture dimension sanctionability influence the process of implementing and working of a whistleblowing procedure?

~ 10 ~

III RESEARCH CONTEXT, METHOD AND PROCESS

Research Context

The case study is conducted at a Big-N accounting firm. As of now, there are four large accounting firms, but the number of large accounting firms is known to change over time. Therefore, I use the term ‘Big-N’ accounting firm. The research is conducted in the Netherlands.

Research Method and process

For the data collection within the case study, semi-structured interviews were used (Flick, 2006). To facilitate the making of the interview, the book of Ben Emans, ‘Interviewen’ is used (Emans, 2002). The interview is built up out of some general questions about the respondent, the

organisation and the whistleblowing policy, a number of cases and questions about ethical culture.

The interview starts with general questions in order to relax the atmosphere and to get a general idea about the background of the respondent. When asking for the background, there is much emphasis placed on the training the respondent has received. Shawver (2011) researched that it is useful to teach individuals about whistleblowing and the consequences. The outcome of Shawyer’s research is that respondents are more likely to blow the whistle after a training course, than before. She advises organisations to take the time and have corporate ethics training; this will increase the likelihood of internal whistleblowing. Therefore I ask all the respondents specifically about all their possible training they perceived in their career with the company.

In order to get a good image of the communicated ethics to the organisational members, I researched the literature on how this is usually communicated to them, so to ask the right

questions and to be able to ask for direct method if a respondent is reluctant to answer. There are several ways in which an organisation can communicate their ethical norms and values. It can be done through written cases, this was the method in the 1930’s (DeKay, 2011). Communicating ethics through e-mail discussions is also an option, which has proved to make people more aware of the ethics of the organisation (Leek, Leek, Roxas, Robichaud & Blanco, 2007). Role-playing has also proved to be very effective in communicating ethics, it allows the individual a deeper involvement, ‘get into the skin’ of the character (Doron, 2007). But nowadays, ethics are even communicated through YouTube videos (Lehman, Dufrene & Lehman, 2010).

After that, questions about the whistleblowing procedure are asked and their awareness. But since it is a semi-structured interview, not all questions were asked in the same sequence every time. Just the subjects to be discussed were fixed. The reason that I put in cases in the interview, is to make the respondent visualise a situation and ask for a specific response if the respondent would encounter that situation in real life. The cases all represent situations in which it is hard to see whether it is ethical. The situations are established with help of experienced accountants, thereby making use of their experience with audits and their experience regarding ethical behaviour. After establishing the cases, a pilot was held with a staff level accountant. After the pilot no changes were made: the accountant stated that he understood the cases, found them realistic and saw the dilemmas in the cases presented. Examples of such cases are:

~ 11 ~

Case 3:

After a thorough annual audit of an organisation, the audit team decides to give a statement with limitation to this organisation. However, when discussing this with the responsible partner, the partner decides to give a statement of approval. The partner likes to keep the client and his opinion is deciding. What do you think of this situation?

Case 6:

Your colleague is given an expensive, high quality bottle of wine by a client, this for the good collaboration. It is a bottle of great value. Do you think your colleague can accept this bottle? Case 9:

A close colleague of yours regularly prints for own use, for example a lonely planet for her holiday in Beijing, what do you think of this?

Some cases ask the opinion about the use of the resources of the organisation, other cases ask about the acceptance of gifts, or ask more in-depth about the professional behaviour. The whole questionnaire is attached as appendix 1. The interview was conducted in Dutch, so the questions in the appendix are in Dutch as well. The main reason for presenting the cases in addition to open interview questions is to get the employee thinking about the ethics of the organisational and own ethics. After the presentation of the cases, questions will be asked regarding to ethical culture according to the CEV-model.

In total there were eight interviews conducted over a period of two weeks. In total there were 3 employees of the staff level interviewed, of which two seniors, three managers, one partner and a compliance officer. All the respondents are male. The reason these respondents were selected was because I wanted to have one department geographically close to the main office, but not too close to be greatly influenced by it. Also, I wanted most respondents to be from the same department, this in order to get the view on the whistleblowing procedure and ethical culture from multiple levels and perspectives without the bias of the change in leadership for example. This way, I could get an all round perspective on the subject from one department. The respondents were approached by phone.

Several sources of information were used apart from interviews. The website of the organisation, books about the organisation and files from the human resource guide. The interviews were tape-recorded and subsequently transcribed.

~ 12 ~

The implementation of the whistleblowing procedure and the awareness of the employees

At the end of 2004 the whistleblowing procedure was implemented in the organisation. This was initiated by the global organisation: it was one of the things that were named in the Code of Conduct. It was implemented in the Netherlands after it was thoroughly discussed and tuned with the employee counsel. Since it was implemented eight years ago, there have not been many changes. The only aspects that have changed, are the assignment of certain functions internally. However, there was a regulation initiated which obligates accounting firms in the Netherlands to have a whistleblowing procedure, which needs to be visible on the website for possible external callers as well.

Since the implementation of the whistleblowing procedure, there are a few reports of wrongdoing a year. The communication of the whistleblowing procedure was done internally to all the employees. In a report that the organisation publishes every year, there is some

information given about the reports that are done through the ethics hotline, as the organisation calls the whistleblowing procedure, but the reporting is quite minimal. This is a published report accessible to the general public.

When the respondents are first introduced with the subject, a lot of respondents state that they have no idea the organisation has a whistleblowing procedure, or as this organisation names it, an ethics hotline. So the awareness of the whistleblowing procedure was quite low. To almost all respondents, examples of how it could have been introduced had been asked for. Only half of the respondents had an idea about the existence of the whistleblowing procedure within the organisation, although most of the time only vague. Most of the respondents state that ‘they have heard about it in passing’, or that ‘it is probably named in the employee guidelines, but I must admit I never took the time to look at it thoroughly’. Most respondents answer the question: ‘Do you think you will be able to find the phone number of the ethics hotline within five minutes?’ with ‘No, I don’t think so’. One respondent actually tried to find it, and was able to do it within five minutes, not knowing the whistleblowing tool was called ‘ethics hotline’.

Respondents state that by the introduction inside the organisation, no attention was put to the whistleblowing procedure. Also, the members of the organisation that were around during the time of the implementation of the whistleblowing procedure, cannot recall how it was brought to their attention. However, all respondents knew perfectly well what a whistleblowing procedure was and that they needed to see whether their clients had one, which is ‘one of the things on their checklist’, as one respondent named it. Hereby I can conclude that no specific training was given to the employees in order to make them more willing to ‘blow the whistle’.

The compliance officer I spoke with, stated that since the implementation of the cultural change program, which the whistleblowing procedure, ‘a tool’ as he states, is a part of, there have been huge changes in the behaviour of the individuals in the organisation. The education of ethics in summer courses and the developments on the intranet, the publications that have been made, and other expressions of the organisation are a few of the things in which you can recognize the changes made, according to the compliance officer. However, the compliance officer states that the whistleblowing procedure was implemented three to four years ago, but it was actually implemented eight years ago. Probably four years ago, the awareness of the whistleblowing tool

~ 13 ~

was lower. As a sidenote should be said that this compliance officer has left the organisation for a few years. However, he could have known, since he also was situated at a similar position when the ethics hotline was implemented.

In the past years there has been a culture change in the organisation. This culture change was driven by external (AFM, new laws) and internal forces. The organisational members that have been around longer, could perceive a real difference, between the before and after situation. The awareness of ethics was more pronounced, externally with the client, but also internally by more emphasis on ethical values.

Fraud

One of the first things the respondents were asked was what their image was of fraud. This was done in order to see what fell in their framework seen as ‘wrong’. In table 1 I included all the examples of fraud that were named by the respondents and their frequencies. Not one example was name by all respondents.

When the respondents are asked about what their image is of fraud, they come up with similar definitions as those written in study books. Most respondents name ‘the fraud triangle’, ‘acting outside the rules set by the law or organisation’, ‘theft of the organisation’ and ‘unlawful taking of possessions and enriching yourself or harm someone else, or both’. They also note that it is always done consciously. Half of the respondents are still working on their studies and most of the other respondents just finished their education, which could explain this awareness of the definition of fraud.

What becomes apparent is when I asked for concrete examples of fraud, or fraudulent behaviour, the lower levels came up with possibilities of fraud inside the organisation or experienced fraudulent behaviour at clients, while the higher levels named examples out of papers or experienced based cases. However, when asked for specific examples within the accounting firm, they do come up with quite similar examples of possible fraud.

The most striking example of fraud, experience based, was that one of the respondent named he had experienced once that the signature of the partner was falsified. He emphasized that this is not something that is accepted nor taken lightly. On the question what happened to this person the respondent replied: ‘this person does not work here anymore’.

One respondent names ‘the characteristics of a person that commits fraud is that, he or she is above 30, has had a good education, a financial background, a relative good function, and is an important contact person. That is about 80% of all the people that work in this organisation, it could be anybody. But normally, you will not take notice of that fact’.

~ 14 ~

Table 1: examples of fraud and their frequency

Forms of fraud Amount of respondents named it

Reporting frauds 5

Repairing of files 1

Theft of stock 3

False declarations 5

Earnings management (at clients or in the organisation itself) 4

Hour registration 5

Bribery 2

~ 15 ~

The influence of ethical culture on the implementation and working of the whistleblowingprocedure

Clarity

Research Question 1a: How does the ethical culture dimension clarity influence the process of implementing and working of a whistleblowing procedure?

All respondents state they think that the organisation has clearly communicated to them what is acceptable and what is not acceptable. One respondent states that the organisation has

communicated quite clearly what is expected from them behaviour wise, but that sometimes people do step out of line. This is then not due to ill-communicated rules, but probably has other reasons.

One of the cases that were presented to the respondents was a case that describes small theft in the organisation, the theft of writing materials, staplers, folders, etc. Most of the respondents agree that it is normal to have some writing materials situated at home in order to work there comfortably as well. That is allowed by the organisation, to have some writing materials in the laptop bag in order to work comfortably on location or at home. Only a few respondents would allow the taking home of these materials for private use, emphasizing it is not the ‘worst thing ever’. They do know this is not allowed by the organisation, since the materials are then used for private purposes. So the fact that some respondents step over that boundary line, does not mean they are unaware that it is not allowed.

One respondent notes that, considered the cases presented, he now starts to doubt whether everything is communicated as clearly. He asks me whether I could find out on what levels it is communicated what to do in case something occurs presented in the cases. It was a manager who asked me this question, which leads me to believe that it is communicated above this level, or this manager had not paid attention as well as he should have when the rules were laid out. The other two managers interviewed believe ‘much attention is given to ethical behaviour’, but the partner tells he ‘was given a booklet which explains exactly what gifts are acceptable and what gifts are not’ when he became partner. This leads to conclude that more clarity of the gift policy and other potential issues can be given to the lower levels, as they have very close contact with clients. But also that the situation of gifts will come up more often in the higher levels, as the organisation gives information when there is a transition to the partner level. So the organisation balances the amount of information that should be known throughout the different levels.

In the cases that were presented to the respondents, the respondents had a very clear idea of what was allowed and what was not allowed. The only differences that developed, was because of the reasons the respondents gave. The dimension clarity influences the working of the

whistleblowing procedure by setting clear guidelines of what is acceptable and what is not. This provides the framework to spot off-behaviour. This also holds for the implementation of such a system, whenever it is not clearly communicated to the employees what behaviour is satisfying and what behaviour is off, the implementation of such a system has no use.

~ 16 ~

Congruence of local and senior management

Research Question 1b: How does the ethical culture dimension congruence of local and senior management influence the process of implementing and working of a whistleblowing procedure? In the organisation researched, the hierarchical levels are so that the highest ranked person on the department, is also the highest rank in the organisation. The partner tells it like this: ‘the only difference between a partner and a member of the board, is that a board member is assigned with extra leadership duties. By rank in the organisation, we have the same’. So in this case, the only congruence of management researched is the one of the local manager.

Most respondents think the behaviour they are expected to show, is also shown by their supervisors. They come up with words like ‘the tone at the top shown is good’ and ‘people really practise what they preached’. However, not all employees are of that opinion. One employee states in answer of the same question: ‘sometimes, not always, but in general they do’, another respondent states that he thinks it is way more important that the behaviour a superior displays is ethical, than the teaching about ethics in training. A good example of the tone of the top named by a respondent was a case in which a partner took a relatively small ethical issue, to the top of the organisation, since he did not agree with it.

So, as an answer to the research question, how does the congruence of the management influence the process of implementing and working of a whistleblowing procedure? First of all, if it is encouraged by the management to report wrongdoing or unethical behaviour, through setting a good example, others will take on that good example. When a manager acts unethical himself, he will probably not encourage to report wrongdoing, since that means there is a chance he will be reported too. Therefore the tone at the top influences the working and implementing of the whistleblowing procedure by encouraging or discouraging employees to report wrongdoing.

Feasibility

Research Question 1c: How does the ethical culture dimension feasibility influence the process of implementing and working of a whistleblowing procedure?

The questions regarding to feasibility were answered quite diverse. Most of the respondents of the lower levels stated that they felt enormous pressure to deliver on a tight schedule, whilst at the higher levels, where the planning usually are made too, they thought there was plenty of time to do the job well in the time given. One example given by a respondent: ‘when I was auditing a housing company, where tangible fixed assets are the largest part of the financial statement, I was given six hours to check this post. To paint the picture: this was 189 million of the financial statement total of 190 million. This would cost me two days at least. I discussed this with my superior and he agreed to give me more time, saying: ‘well, see then how fast you can do it’. Even though I now had more time than 6 hours, I still felt a huge pressure to do it as fast as possible. I cannot say that I liked that pressure.’ One respondent states that ‘it was in the

beginning of my work period sometimes a dilemma whether I would write all my worked hours’. Hereby describing the dilemma between the hours that are budgeted for a certain engagement and

~ 17 ~

the hours that it actually takes to complete the engagement: there is a large pressure to work efficiently.

Case 4 deals with the situation in which the manager wants to rush the audit, since they are way behind on schedule. One respondent states that in some cases time pressure is too high to perform a good enough audit given the time. He gives an example he remembered out of the widely published news of the firm ‘Olympus’, that was pressured to deliver their yearly statement within the usual date, even though they told the authorities they could not because of a large fraud. Olympus, knowing that not publishing a yearly report for the American stock market, would be the same as filing bankruptcy immediately, put every effort in trying to make the deadline. ‘Is this then unethical?’ the respondent contemplates, because when there is no choice, there is no deciding whether something is ethical or not. However, all respondents do think an audit can go faster, if desired. But it will increase the pressure put on the employees much larger and can be a risk for the quality of the audit. For example one respondent states: ‘you don’t always have to go for the ten, sometimes, a six is good enough’. But stating as well: ‘some minor mistakes can stay in when working with tight deadlines’.

When there is a lot of pressure, which is an element of the fraud triangle, the risk of fraud is higher. Therefore, when the feasibility is low, the need for a whistleblowing procedure is higher. Therefore, the influence of feasibility on the implementation and working of the whistleblowing procedure is that it increases the importance.

Supportability

Research Question 1d: How does the ethical culture dimension supportability influence the process of implementing and working of a whistleblowing procedure?

According to one of the respondents: ‘you will not stay long in an organisation, if you cannot identify yourself with the way things are done in the organisation’. Several respondents reacted in similar ways. Another respondent makes the following comment when asked whether he

identifies with the way things are in the organisation: ‘some people step out of the train and think: ‘I did not get checked, again! Why did I pay?’, whilst actually you are paying for the service of transport, not to get checked by a conductor. Being ethical fits me, try to work within the

boundaries set.’ He makes a crucial point there: being ethical, also when no one is watching you. Supportability influences the process of implementing and working of a whistleblowing procedure by setting the right core values within the organisational members. Whenever you are unable to identify yourself with ‘the way things are done here’, usually you will not stick around long. Therefore, the members that are in the organisation for a longer time, will have the values the organisation appreciate and will be able to see behaviour that is not according to these core values.

~ 18 ~

Transparency

Research Question 1e: How does the ethical culture dimension transparency influence the process of implementing and working of a whistleblowing procedure?

When the respondents were asked whether they or their colleagues could commit fraud without being noticed, most respondents noted that most things would come out in the end, but that a lot gets unnoticed. Small theft, declaration and the registration of worked hours are examples that can go unnoticed.

‘When there are too many hours put on an engagement number, the budget gets overbooked and people will be asked if it looks like there are too many hours written’, one respondent notes. Another states ‘there are only this many hours in a day, when I see one of the persons that are booking on my budget is writing more hours than normal in a day, I am going to ask him questions.’ However, most respondents agree that when done moderately, it is possible to get away with light overwriting of hours, it will not be visible. Respondents note that it is not visible for other organisational members whenever they take something out of the office supply room. One respondent says: ‘if I were to go down to the office supply room and fill up my laptop bag totally up with pens, calculators, and files, no one would be able to see it. At the main office, the office supplies are situated in a room where there are more people, then it is less easy to fill up your bag. In this office, it is quite easy to do.’ Declaration of costs is something that is also possible to get away with, according to the respondents. ‘If you own the budget and you book costs on it, I guess you can book extra costs on it’. Another respondent ensures there are controls in place to prevent excessive declarations of costs, but admits that ‘minor extra declarations might not stand out’.

One of the respondents names a situation in which he finds something in the client’s administration which is potentially fraudulent. He then went discussing this with the responsible partner, and decided together that it needed further investigation. The partner continued

discussing the issue with others and eventually reached a decision about this matter. The respondent pities that he could not see what the reasoning of the partner is behind the decision that was made in the end. So the decision making process is not always transparent for all employees.

Transparency will influence the process and implementation of the whistleblowing

procedure the following way. When unethical behaviour is not visible, it is very hard to blow the whistle, since usually there will be unawareness of the unethical behaviour. Also, referring to the other aspect of transparency, since the decision making process is not visible to all employees when confronted with an unethical situation, the transparency of the reasoning behind a decision lacks clarity too. Therefore, employees could have the feeling there are no measures taken after the reporting.

~ 19 ~

Discussability

Research Question 1f: How does the ethical culture dimension discussability influence the process of implementing and working of a whistleblowing procedure?

Most respondents said they can discuss ethical issues quite well with colleagues. ‘Maybe not with everybody’, one respondent notes, ‘but with most I can discuss everything’. Another states that it is essential to talk about ethical issues with colleagues. ‘A lot of stuff is professional judgment, you have to compare doing a good audit according to the rules and doing a good audit according to your judgment. There can be a gap, a ring of tension, between the rules and your professional critical attitude. It can be very helpful and useful to discuss these issues with colleagues.’

Case 3 describes a situation in which the partner and the team cannot reach a decision about an audit. The team thinks that it should be a statement with limitation, whilst the partner is of opinion that is should be a statement of full approval. The partner’s opinion is leading in this presented situation. Most respondents come up with an argumentation in which the partner will have other arguments, perhaps even better arguments, since he/she has so much experience in this field. But they all agree that if the partner has no other arguments, this situation should not be allowed. Others state they would call a ‘consult’ of a compliance officer, stating that his/her opinion is always binding in this kind of cases, thereby closing the argument. The compliance officer states that this is the right thing to do whenever there is a conflict between the team and the partner: consult compliance. The respondents would find their own way of standing up to the partner if the partner did something they did not agree with, outside the whistleblowing

procedure.

Case 10 describes a situation in which the boss (partner in this case) has damaged another car inside the parking garage, the boss drives off however, as if nothing has happened. The situation is presented as if the respondent has seen this. Then he is asked: ‘would you do something about this situation?’. Most respondents would take action, by leaving a letter on the car that was damaged who did it, by leaving a message at the reception describing the situation or speak to the boss themselves. All respondents that agreed to take action, were then presented by the case that they would have a meeting with that boss, considering their performance. For some respondents this changed the situation, they might tell it after that meeting, or just stick to the note, for others it was merely an opportunity to speak to the boss that same day. This evidence implies that not all matters are that discussable amongst employees. The respondents feel very free discussing the work issues with each other, but when it comes to talking to their boss about something he or she did wrong, it then can become less discussable. However, all the respondents would notify their boss in some way, and they did find their own creative ways to inform him or her without using the whistleblowing mechanism.

Also, during the research it became apparent that in this organisation there are much more ways around the ethics hotline, while still reporting the wrongdoing. Most of the respondents would not go to the whistleblowing hotline whenever they would discover something unethical, but gave their own process of handling that. They would for example call a compliance officer whenever they could not handle it within the team. This is an example of the high discussability of the culture decreasing the immediate need for a whistleblowing procedure.

So based on these findings, the influence of discussability is such, that when it is very easy to discuss ethical issues with colleagues, the need for a whistleblowing procedure is lower.

~ 20 ~

Sanctionability

Research Question 1g: How does the ethical culture dimension sanctionability influence the process of implementing and working of a whistleblowing procedure?

Most respondents are quite satisfied with the sanctionability. Good behaviour is rewarded in the end and bad behaviour is punished. However, some respondents are of opinion good behaviour should be rewarded more than what it is, up to this point. Good behaviour can be valued more. This is a statement that was issued by different hierarchical levels in the organisation. There are several examples given of bad behaviour in practice, for example a bad attitude towards other employees, the falsification of the signature as referred to earlier or excessive use of gasoline. But the situations given were situations that were already punished.

Because bad behaviour is punished in the end, and good behaviour is rewarded, employees see the effects of good and bad behaviour. Therefore, by using the whistleblowing tool, they can have faith in the proper handling of their report of wrongdoing. It can encourage people to use the ethics hotline.

~ 21 ~

Figure 1: Ethical culture within the organisation specified per respondent

Figure 2: Ethical culture, the dimensions perceived by employees

100% 88% 63% 100% 13% 100% 75%

CEV-model dimensions

~ 22 ~

To give an answer on the research question: ‘How does ethical culture influence the process of implementing a whistleblowing procedure?’ the conclusion is, based on the case study, is that the all the dimension of the CEV model influences the working and implementation process of a whistleblowing procedure. It does that in the following way. Clarity influences the working of the whistleblowing procedure by setting clear guidelines of what is acceptable and what is not. Congruence of management influences the working by encouraging employees to report wrongdoing by their display of behaviour. Feasibility influences the implementation by increasing the need for the whistleblowing procedure, this is higher when a low feasibility increases the pressure on employees. Supportability influences the process of implementing and working of a whistleblowing procedure by setting the right core values within the organisational members. Transparency influences the working by giving employees an opportunity to witness the off-behaviour and affects the use of the tool by the given transparency of the reasoning of the superiors when handling reported wrongdoing. The influence of discussability is such, that it can decrease the need for a whistleblowing procedure whenever it is high. Sanctionability encourages people to use the whistleblowing procedure whenever it is visible that off-behaviour is punished: it makes it worthwhile to report wrongdoing. Lastly, although not directly an answer to the question, it is of influence by the awareness of the employees. When such a system is

implemented, part of the implementation process is the awareness of the potential users. Also, when users want to use the tool, they should be aware it exists. In the organisation I have studied, the awareness was not high, even though the ethics hotline was implemented 8 years ago. This resulted in the fact that the respondents that I spoke to would not use this to report wrongdoing. How could they when they were unaware of the tool? It could be that possible reportings go lost because of the unawareness.

VI FUTURE RESEARCH

For future research, more research can be done to what is of influence in the development and working of whistleblowing procedures, since there is still a research gap. I only research the influence of ethical culture. A second suggestion for further research, however not the scope of this research, is a clear view on how a whistleblowing procedure should be implemented. When conducting this research, it became evident that there is practically no literature about the implementation of a whistleblowing procedure, even though it is obligated for most large

companies. While there are some ‘tools’ available in the literature, there are no clear guidelines.

VII SUGGESTIONS FOR PRACTISE

A suggestion for practise will be the awareness of the whistleblowing procedure. When new members join the organisation, make sure they are aware of the fact that they can report

wrongdoing anonymously. Otherwise, how can there be wrongdoing reported through this tool? Also, as there were differences between the ethical views of the accountants and the compliance officer, it leads to conclude that there is still ambiguity when it comes to some ethical issues. The advice would be to increase the awareness of the ethical guidelines and keep them fresh in the employee’s minds by doing cases in training.

~ 23 ~

The respondents used for this research were all male, almost all Dutch of origin and mostly from one department, in one location in the Netherlands. This could have influenced the results. However, now that all the levels in the hierarchy are taken from one department, I was able to do an in depth case study of one department in the organisation. This enabled me to get an all-round view of the department, from the perspectives of all the different hierarchical levels, which I found very valuable. The accountants from the department were chosen with care, so as to make sure the diversity in experience years with the company was guaranteed.

Out of the interviews it becomes evident that respondents see fraud as something entirely different than unethical behaviour. For example, one respondent states, that ‘I do not think it is fraud whenever a superior decides whenever the budget is gone, to not look into posts

thoroughly’, where after he notes, ‘it is more the easy way out, earning more money by not checking all the posts thoroughly’. But according to the definitions the respondents gave of fraud, one of the things being not acting outside the rules set by the organisation, it would be fraud. Therefore, there can be some confusion about the concepts used in the interview, even though there was asked for a definition at the start of every interview and explanations of concepts were given by the interviewer.

Although the compliance officer stated that there are not many reports of wrongdoing and he does not think that the implementation of the whistleblowing procedure has led to more reports, there should be noted that whenever employees are unaware of such a tool, reports cannot be made. So the question is how much value should be attached to this report of the compliance officer. Also, because of the low awareness and limited knowledge about the ethics hotline of the employees, it was impossible to get their opinion on the tool itself (e.g. easy to reach, faith in confidentiality). This is a limitation of my research.

Respondents said that the implementation of the ethics hotline alone did not bring a large cultural change. They think that the initiated cultural changes, of which the hotline is one aspect, has indeed influenced their behaviour and that of their colleagues. As most of the respondents had no idea it existed, it would be striking if they had experienced large influence from the

implementation. However, the respondents that were aware, said it was part of the

implementation of a larger system, which is why they could not see it as a ‘unit apart’. Therefore, the results of this study can be influenced by the implementing of an entire new cultural system. Or even, perhaps the hotline should not be seen as a unit apart, but as part of a larger system.

DeFond et al. (2002: 1251-1252) states: ‘although there are market-based incentives for auditors to remain independent, there are also forces that potentially threaten auditor

independence. Specifically, regulators are concerned about the two effects of non-audit services. One is the fear that non-audit fees make auditors financially dependent on their clients, and hence less willing to stand up to management pressure for fear of losing their business.’ With that said, it takes a larger amount of effort to stay ethical under all these kinds of pressure. All big-N firms offer non-audit services such as consulting. Since they are faced with non-service fees that could potentially harm their independence, ethical culture inside the organisation is more important than in other organisations. The fact that DeFond et al., (2002) did not find that empirical relationship between non-audit fees and independence does not mean it does not exist. They researched it only on the decision ‘going concern’ and proven that relationship non-existent. The fact that regulators fear there might be a relationship (DeFond et al., 2002) is reason enough to

~ 24 ~

stay on guard. Accounting firms differ from most firms in needing to stay independent of the client. Therefore, good ethics could be more important to an accounting firm than a regular firm. This is something that should be taken in mind whenever reading the results of this study.

According to Miceli et al., (2009:390) ‘it is remarkable that anyone ever chooses to

challenge organisational wrongdoing by blowing the whistle, given the risk and costs, such as the perception on the part of many managers that few cases have merit, and the limited direct rewards for whistleblowing’. According to them, it would have more effect to focus on the wrongdoing, than to protect the whistleblowers. Should we then ignore the whistleblowing procedure and work with organisational boundaries alone? Unfortunately, solely relying on one internal control method is not advisable, and organisational wrongdoing still occurs, even though the