There has been lots of chatter about the whistleblower provisions under Dodd-Frank. A whistleblower can earn 10% to 30% of any penalty the federal government imposes against a company. And companies have to be very careful, because there are anti-retaliation provisions in the legislation too.
One problem with this legislation that I hadn’t thought about is the impact it could have on employees using fraud hotlines. One of the most common ways that fraud is detected within companies is via tips from employees, vendors, or customers. An anonymous hotline helps encourage the reporting of these tips.
But if a bounty of 10% to 30% is available to an employee who rats the company out to the feds, might that decrease the use (and therefore effectiveness) of the company hotline? Probably.
Hotlines are successful, in part, because they allow companies to find out about problems early. They can stop issues while they’re small, and before they can get out of control. But now employees have a financial incentive to bypass the hotline and go straight to the government. Or they may sit back and wait (rather than calling the hotline), with the possibility that the bad behavior may expand into something huge with a monetary reward for them if they are the first to rat out the company to the feds.