What to Do if Your Manager is Committing Fraud: Part 4 of 8

Part 4: Reporting the Fraud — Your Options

You have multiple reporting channels available to you, and the right choice depends on the size of the company, the nature of the fraud, and who is involved. You may report to more than one channel — in fact, this is often wise.

4.1 Internal Reporting

Internal reporting means going to someone inside the company who has authority over the person committing fraud. This is appropriate when:

•       The fraud does not appear to involve senior leadership or ownership.

•       The company has an established ethics hotline, audit committee, or board of directors.

•       You believe the company will respond appropriately and investigate in good faith.

Be cautious about internal reporting if the fraud involves your direct management chain, if ownership appears to be aware of or complicit in the fraud, or if you have reason to believe the company will retaliate rather than investigate. In publicly traded companies, the Audit Committee of the Board of Directors is generally the most protected internal channel.

4.2 The SEC Whistleblower Program

If the company is publicly traded or if the fraud involves securities — for example, misrepresentations in financial statements filed with the SEC — the Securities and Exchange Commission's whistleblower program is one of the most powerful tools available to you.

•       You can report anonymously if represented by an attorney.

•       The SEC is prohibited from disclosing your identity in most circumstances.

•       If the SEC recovers more than $1 million as a result of your tip, you may be entitled to between 10% and 30% of the recovery.

•       Federal law prohibits retaliation by employers against SEC whistleblowers.

•       Reports are filed at www.sec.gov/whistleblower.

4.3 The IRS Whistleblower Program

If the fraud involves tax evasion, unreported income, payroll tax theft, or falsified tax returns, you can report to the Internal Revenue Service:

•       The IRS Whistleblower Office administers a program that pays awards of 15% to 30% of the amount collected when the unpaid taxes exceed $2 million (or the taxpayer's annual gross income exceeds $200,000).

•       You submit Form 211, Application for Award for Original Information.

•       Your identity is kept confidential to the extent permitted by law.

•       More information is available at www.irs.gov/compliance/whistleblower-informant-award.

4.4 The FBI and Department of Justice

For large-scale financial fraud, wire fraud, bank fraud, or fraud involving federal programs, you can report directly to the FBI's Financial Crimes unit. The FBI takes referrals from the public and from attorneys, and in cases involving bank fraud, reports can also be filed with the Financial Crimes Enforcement Network (FinCEN) or the relevant banking regulator.

4.5 State Authorities

Many states have their own fraud reporting mechanisms:

•       State Attorneys General often have consumer protection and business fraud divisions.

•       If the fraud involves sales tax evasion, report to your state's Department of Revenue or Taxation.

•       If the fraud involves insurance claims, report to your state's Department of Insurance.

•       Many states have their own whistleblower protections that supplement federal law.

4.6 Your State CPA Board

If you are a licensed CPA, or if the fraud involves a licensed CPA acting as the company's accountant, you may have an obligation to report to your state's Board of Accountancy. Refer to your state's code of professional conduct and consult with your attorney about whether a mandatory reporting obligation applies to your situation.

Whistleblower Protections

Federal law — including the Sarbanes-Oxley Act, Dodd-Frank Act, and the False Claims Act — prohibits employers from firing, demoting, harassing, or otherwise retaliating against employees who report fraud in good faith. If you face retaliation after reporting, you may be entitled to reinstatement, back pay, attorney fees, and additional damages. Document every adverse action taken against you.

Have Questions? MMB MBA Can Help.

At MMB MBA, we specialize in forensic bookkeeping, QuickBooks consulting, and helping businesses untangle financial irregularities. If you suspect fraud in your organization — or if you're a business owner who suspects something is wrong — we can conduct a discreet, professional review of your books and help you understand what you're looking at.

Contact us today at www.mmbmba.com

General Informational Purpose Only

The content published in this blog post, including all text, checklists, examples, recommendations, and any other materials contained herein (collectively, the "Content"), is provided by MMB MBA solely for general informational and educational purposes. The Content is not intended to be, and should not be construed as, legal advice, accounting advice, financial advice, tax advice, investment advice, or any other form of professional advice. Reading this blog post does not create any professional relationship — including but not limited to an attorney-client relationship, accountant-client relationship, or consultant-client relationship — between you and MMB MBA or any of its principals, employees, contractors, or affiliates.