Getting More Workers To Whistle

By Ben Levisohn

Employees lead the pack in corporate whistleblowing, accounting for 19% of those reporting fraud. But they suffer for it, despite Sarbanes-Oxley protections, say researchers at the University of Chicago and the University of Toronto. Some 82% of those who uncovered fraud from 1996 to 2004 said they were penalized—ostracized, demoted, or pressured to quit, for instance. So how can society urge more workers to come forward? Offer cash rewards, say professors Adair Morse and Luigi Zingales at Chicago and Alexander Dyck at Toronto. Their model: the federal False Claims Act, which gives whistleblowers 15% to 30% of any damages recovered in cases where the government is defrauded. The law should cover all corporate fraud, they say, because it has spurred employee whistleblowing without increasing frivolous suits. Their research showed that nearly 50% of health-care fraud cases (many of which involve cheating Uncle Sam) were initiated by corporate workers. “They still lose their jobs,” Morse says, “but at least they’re paid to go into retirement.”