Whistleblowing Internal Auditors : a Contradiction in Terms? Thesis
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Open Research Online The Open University’s repository of research publications and other research outputs Whistleblowing internal auditors : a contradiction in terms? Thesis How to cite: Vinten, Gerald (1995). Whistleblowing internal auditors : a contradiction in terms? MPhil thesis The Open University. For guidance on citations see FAQs. c [not recorded] https://creativecommons.org/licenses/by-nc-nd/4.0/ Version: Version of Record Link(s) to article on publisher’s website: http://dx.doi.org/doi:10.21954/ou.ro.0000fb65 Copyright and Moral Rights for the articles on this site are retained by the individual authors and/or other copyright owners. For more information on Open Research Online’s data policy on reuse of materials please consult the policies page. oro.open.ac.uk Professor Gerald Vinten BA MA MSc Dip Ed DPA IPFA FRSA FRSH FRGS F Inst D FIXA Hon LLD. WHISTLEBLOWING INTERNAL AUDITORS ■ A CONTRADICTION IN TERMS? Offered for the degree of Bachelor of Philosophy in the disciplines of management and accountancy. Submitted 1st November 1994. ProQuest Number: 27919365 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent on the quality of the copy submitted. in the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. uest ProQuest 27919365 Published by ProQuest LLC (2020). Copyright of the Dissertation is held by the Author. Ail Rights Reserved. This work is protected against unauthorized copying under Title 17, United States Code Microform Edition © ProQuest LLC. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106 - 1346 WHISTLEBLOWING INTERNAL AUDITORS - A CONTRADICTION IN TERMS? Professor Gerald Vinten. ABSTRACT The topic of whistleblowing is achieving unprecedented prominence in official reports, publications, research, legislation and the media. Some influential voices are suggesting that far from whistleblowing - informing on organizations that commit . illegal or unethical acts - being subversive and undesirable, it may in certain circumstances deserve high praise. Inevitably it entails huge risks, and these risks need to be personally and carefully considered. The first part of this thesis examines the case of external audit, a close cousin of internal audit. There should be fewer opportunities for the external auditor to blow the whistle, although such instances are likely to be highly material. There has been much international debate on the role and purpose of external audit, and this has tended to exclude whistleblowing. However there are winds of change, and tightening of legislation and recent ethical guidance suggests that there are occasions when whistleblowing is either required or seriously to be contemplated. Attention then turns to the central theme of internal audit. For practitioners the issue is far from clear-cut, and the Code of Ethics of the Institute of Internal Auditors and its other guidance is found to be ambiguous and even prejudicial to the interests of the individual member. Case studies of internal audit wlustleblowing highlight the issues. Participant observation and social audit are explored, since both result in die possession insights that are the substance from which whistleblowing revelations are derived. Generalized examples of whistleblowing are then presented to shed light on the wider context. Disaster situations by their life-threatening nature receive more widespread assent as to their societal value . The extent of legal protection for whistleblowers follows. Finally come criteria for valid forms of whistleblowing, the formulation of codes of ethics for whistleblowers, and suggest the way forward for the internal audit profession. CONTENTS. SCOPE OF THESIS 3 CHAPTER 1. INTRODUCTION 5 CHAPTER 2. DEFINITIONS 10 CHAPTER 3. THE EXTERNAL AUDITOR 15 CHAPTER 4. THE CONTRADICTION OF INTERNAL AUDIT? 26 CHAPTER 5. CRITIQUE OF THE OFFICIAL DOCTRINE 36 CHAPTER 6. CASE STUDIES OF INTERNAL AUDIT WHISTLEBLOWERS 47 CHAPTER 7. PARTICIPANT OBSERVATION, INTERNAL AUDITING AND WHISTLEBLOWING 64 CHAPTER 8. THE SOCIAL AUDIT 84 CHAPTER 9. COSMIC WHISTLEBLOWING 99 CHAPTER 10. WHISTLEBLOWING ON DISASTERS 114 CHAPTER 11. LEGAL PROTECTION FOR WHISTLEBLOWING? 122 CHAPTER 12. A CODE OF ETHICS FOR WHISTLEBLOWING 129 CHAPTER 13 CONCLUSION 138 REFERENCES 142 Appendix 1. The ELA Position Statement on Whistleblowing 169 Appendix 2. The HA Code of Ethics 171 Appendix 3. Relevant English case law 174 SCOPE OF THESIS. The topic of whistleblowing is achieving unprecedented prominence in official reports, publications, research, legislation and in the media. Some influential voices are suggesting that far from whistleblowing - informing on organizations that commit illegal or unethical acts - being a subversive and undesirable act, it may in certain circumstances be an activity deserving high praise. Inevitably it entails huge risks, and these risks need to be personally and carefully considered. Some whistleblowers may be described as activists, but others fall less willingly into the role, with the force of circumstances being the precipitating factor. John Banham, Director General of the Confederation of British Industry, wrote in support of the Social Audit report on the subject (Winfield 1990), and a government- established committee has suggested the possibility of honouring whistleblowers in the British Honours system for their good corporate citizenship. The first part of this treatise examines the case of external audit, which is a close cousin of internal audit, albeit with a much more restricted scope than internal audit which is not just concerned with the year-end financial accounts. This means that there should be fewer opportunities for the external auditor to blow the whistle, although such instances are likely to be highly material. There has been much international debate on the role and purpose of external audit, and this has tended to exclude whistleblowing. However there are winds of change, and tightening of legislation and recent ethical guidance suggests that there are occasions when whistleblowing is either required or seriously to be contemplated. Attention then turns to the central theme of internal audit, which seems far more resistant on this point in terms of the professional guidance issued. For the troops on the ground the issue is far from clear-cut, and the Code of Ethics of the Institute of Internal Auditors and its other guidance is found to be ambiguous and even prejudicial to the interests of the individual member. Some case studies of internal audit whistleblowing highlight the issues raised. The topics of participant observation and social a:udit are explored, since both result in the possession of knowledge and insights that are the substance from which whistleblowing revelations are derived. It is often by being a participant observer that one gains the insights into the reality of situations that then becomes the impetus to whistleblowing. Social audit, as its name implies, takes the auditor into areas in which the wider social impact of the organization is explored, and in which matters of serious concern are more likely to surface. It involves greater risk - and maybe opportunity - to both auditor and organization.. - Generalized examples of whistleblowing are then presented in order to shed light on the wider context, followed by a consideration of disaster situations which by their life- threatening nature may receive more widespread assent as to their societal value . The extent of legal protection for whistleblowers is then treated. Finally we provide criteria for valid forms of whistleblowing, the formulation of codes of ethics for whistleblowers, and suggest the way forward for the internal audit profession. CHAPTER 1. INTRODUCTION "If everybody minded their own business", said the Duchess in a hoarse growl, the world would go round a deal further than it does". Alice's Adventures in Wonderland Whistleblowing is a new name for an ancient practice. It may be dated in history from the development of the concept of individualism. In the Middle East this was largely lacking until the eighth century before Christ, and the Hebrew prophets around this time, such as Hosea and Amos (Anderson 1967). They did not hesitate to criticise rulers and their social injustices, and risked their lives in so doing: " Forasmuch therefore as your treading is upon the poor, and you take from them wheat: You have built houses of hewn stone, but you shall not dwell in them; you have planted pleasant vineyards, but you shall not drink wine of them. For I Know of your many transgressions and your mighty sins: they afflict the just, they take a bribe, and they turn aside the poor in the gate from their rights." (Amos 5: 11-12). The lamentations of the prophet Jeremiah are another example, with the prophet daring to castigate God for having set him up to have to bear so many torments and tribulations (Birmingham 1956, Skinner 1963). He has his own sense of dignity and worth that is not immersed into the collectivity of the organic state (Wayper 1973) or of the deity. Prior to this period we find that: " The basic phenomenon peculiar to man is the consciousness of responsibility. In primitive man this is directly expressed as. collective responsibility, in which the consciousness of the I remains uncertain and weakly developed. Only when responsibility breaks through the collective constraint and releases