'Whistleblower policy a necessity to check corruption'

The auditing fraternity feels that the Companies Auditors Report Order (CARO) issued by the central government in 2003 should be supplemented by a stringent whistleblower policy.

As required under CARO, in terms of Section 227 (4A) of the Companies Act 1956, an auditor is required to report compliance of various financial, accounting and company law requirements.

The auditor is supposed to maintain and physically verify the fixed assets and inventory, loan to group companies, timely payment of statutory dues, cash losses, delay in repayment of borrowings from banks, utilisation of the short-term and long-term borrowings, etc.

"The auditors need to realise the importance of CARO and its provisions where the auditors are dependent on the certificate issued by CEO/ CFO of the concerned company. There can be occasions when fingers could be raised on the auditors for any financial and accounting misconduct by the company or its management," said Sanjiv Shah, co-opted member of the corporate and allied law committee, formed by the Institute of Chartered Accountants of India and Association of Certified Fraud Examiners, US.

"It is not advisable for auditors to rely only on the certificate issued by the company. In view of this, it becomes imperative to involve third parties for giving tips on frauds. The third parties may be in the form of employees, vendors and service providers etc, who are called 'whistleblowers," added Shah.

Central Vigilance Commission (CVC), a central government agency, has the mandate to expose corruption in government offices.

The commission is responsible to entertain written complaints or disclosures on any allegations of corruption or of misuse of office by any employee of the central government or of any corporation set up under the Central Act, or companies, societies or local authorities owned or controlled by the central government. But the auditors feel that it has a very limited scope due to the lack of a comprehensive policy.

The Sebi had constituted a committee on corporate governance, which seeks to have provisions on whistleblowers among other things, under the chairmanship of N R Narayana Murthy.

Based on the recommendations of the committee and public comments received, certain amendments are proposed in Clause - 49 of the listing agreement. The Sebi has so far not made the said recommendations mandatory for the listed companies since it is pending for public comments.

The auditors feel that a stringent whistleblower policy will reduce their dependence on management to know about fraud. At the same time the whistleblower policy will provide the legal protection to whistleblowers and encourage people to expose the wrongdoers.

"Moreover, the communication system should be established where the identity of the whistleblower can be kept secret. In the US, there are call centers that handle the calls by the informers and feed the information to the auditors. We also must have some structure with which the informer can communicate through post, e-mail or phone call," said Shah.