Internal Reporting System As A Tool To Prevent Whistleblowing Scandals In Companies

Yulia Landbo

Yulia Landbo

Last updated: Jun 16, 2024 4 min read

Have you ever wondered how organizations can effectively address potential misconduct, prevent the damaging effects of whistleblowing scandals and enhance their reputation? The answer lies in the power of a robust internal reporting system. 

What is the internal reporting channel in whistleblowing?

An internal reporting channel in whistleblowing refers to the designated mechanisms within an organization through which employees can safely and confidentially report potential misconduct, fraud, or other unethical practices. It can also be known as a whistleblowing system.

Internal reporting systems help organizations maintain adherence to whistleblowing regulations and ethical standards. As a vital component of a company's compliance framework, these channels promote transparency and accountability, allowing employees or partners to raise concerns without fear of retaliation.

What are the other options in reporting, if not an internal reporting system?

In cases where internal reporting may not be an effective option, employees have other alternative channels to report their concerns. These options can include:

External channels. Whistleblowers can choose to use external reporting channels if they believe internal channels are insufficient, or compromised, or if they fear retaliation. External channels are usually represented by external government agencies established by countries.;

Public channels. In some specific, exceptional cases, whistleblowers may disclose information to the public or the media if they have reasonable grounds to believe that there is an imminent or manifest danger to the public interest or if they risk retaliation.

Internal Vs. External reporting channels

Internal reporting channels refer to the designated tools within an organization that allow employees to report potential misconduct, fraud, or other unethical practices. These channels can include whistleblowing hotlines (phone), online reporting systems, emails, or direct communication with the compliance officer. Internal reporting is generally the preferred first step as it enables organizations to address issues proactively and maintain control over the resolution process.

On the other hand, external reporting channels involve raising concerns with entities outside the organization, such as regulatory bodies, law enforcement agencies, trade unions, or industry associations. These institutions can vary from country to country, depending on national legislation. External channels are typically resorted to when internal reporting is deemed ineffective, or when the organization failed to implement a whistleblowing channel.

For companies’ own benefits, it is recommended to incentivize employees to use internal reporting channels, as it allows companies to actually solve the incidents before they burst into serious damage. In some countries, such recommendations even come from the national legislature. 

Some companies decide to outsource the management of whistleblowing reports to an external lawyer or an ombudsman. This approach is still considered internal reporting. This is because the contracted party acts on behalf of the organization to address and resolve the reported issues while maintaining confidentiality and ensuring whistleblower protection.

Who should be able to report through the internal reporting channel?

As recommended by the EU Whistleblowing Directive, the mandatory internal reporting channel should be accessible to a range of individuals working in the private or public sector who acquired information on breaches in a work-related context. This typically includes:

•All employees, including full-time, part-time, temporary, and contract workers;

•Persons having self-employed status;

•Shareholders and persons belonging to the administrative, management, or supervisory body of an undertaking, including non-executive members, as well as volunteers, job applicants, and paid or unpaid trainees; 

•Any persons working under the supervision and direction of contractors, subcontractors, and suppliers. 

Why is an internal reporting channel important?

Internal reporting serves as a crucial tool for detecting and addressing potential misconduct, fraud, or unethical behavior within an organization before they become public scandals. By offering safe and confidential means for employees and stakeholders to voice their concerns, organizations can detect issues at an early stage and take corrective action to prevent them from escalating.

A well-implemented internal reporting channel not only empowers employees to contribute to maintaining ethical standards but also allows organizations to proactively mitigate risks and protect their own reputations.

FAQ

Are companies obliged to provide internal reporting? 

The obligation for companies to provide internal reporting channels depends on the jurisdiction and industry-specific regulations. In many countries and industries, organizations wth 50+ employees are required to implement internal reporting systems, particularly for publicly traded companies and those operating in highly regulated sectors, such as finance, healthcare, and energy.

Across the European Union, the EU Whistleblower Directive mandates that enterprises with 50 or more employees set up internal reporting channels for reporting breaches of EU law, irrespective of the nature of their activities.

What is an example of an internal whistleblower?

An internal whistleblower is an individual who reports potential misconduct, fraud, or unethical behavior within their own organization using the designated internal reporting channels. Here is an example: an employee fills in the online form regarding several accounting irregularities he or she observed in the company's financial statements.

Is whistleblowing internal or external? 

Whistleblowing can be both internal and external, depending on the channel through which the concerns are reported.

Internal whistleblowing occurs when an individual reports any potential misconduct or a violation within the organization using the designated internal reporting channels. 

External whistleblowing involves raising concerns with entities outside the organization, such as regulatory bodies, law enforcement agencies, and similar. 

How to encourage internal reporting?

Encouraging internal reporting within an organization requires a combination of policies, communication, and a supportive culture. Here are some strategies to promote internal reporting: developing a user-friendly and confidential reporting system, educating employees on the importance of reporting in upholding ethical standards, ensuring confidentiality and protection for employees who report concerns, encouraging a "Speak-up" culture, open dialogue, and demonstrating a commitment to ethical conduct. 

In conclusion, an internal reporting system plays a pivotal role in promoting a culture of transparency and accountability within an organization. By providing employees with confidential channels to voice their concerns, companies can proactively address potential issues and mitigate risks before they escalate. 

Implementing a robust internal reporting system is an invaluable investment in the financial well-being and future resilience of any organization. If you are looking for a secure solution to set up a whistleblowing channel, we can walk you through the processes at Whistleblower Software. Book a demo with us or look through reporting page on your own.

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