Does your credit union have a whistleblower policy? Of the many policies you should have to guide your operations, the whistleblower policy is probably the least discussed but may ultimately provide significant protection to both the credit union and its employees or volunteers.
What’s a whistleblower policy?
Good whistleblower policies are designed to give employees and volunteers a chain of reporting if they become aware of wrongdoing within the organization.
Wrongdoing could consist of a blatant violation of laws or regulations such as embezzlement or money laundering. It could involve a loan officer approving loans to acquaintances that he or she knows aren’t in the field of membership, a supervisor improperly accessing accounts, or a manager insisting on adjusting entries or delaying reports that may serve to temporarily hide an operating loss at the credit union until after the next board meeting or examination.
In any of these events, an employee or volunteer may, in the absence of a whistleblower policy that’s widely known and understood, be in a quandary as to what to do upon discovering such activities.
Why have a policy?
In the midst of various well-publicized corporate crises, such as Enron and WorldCom, many employees knew about questionable activities but weren’t sure how to report them. Congress responded by requiring publicly traded corporations to adopt a whistleblower policy and to publicize it within the organization. And, undoubtedly due to the Madoff investment scandal, the new Dodd-Frank Wall Street Reform and Consumer Protection Act strengthens employee protections from employer retaliation for reporting suspicious securities activities.
Of course, credit unions are neither publicly traded corporations nor for-profit organizations. But adopting a whistleblower policy not only makes good sense, but should be considered a best practice within the credit union industry for the same reasons it’s required for public companies.
Tax-exempt organizations began seriously focusing on the desirability of having a whistleblower policy a couple of years ago when the Internal Revenue Service (IRS) revised its Form 990, “Return of Organization Exempt from Income Tax.” State-chartered credit unions (but not federal credit unions) are required to file this form annually.
The IRS expanded the 990 form to ask many more questions about the governance and management practices of tax-exempt organizations, including numerous questions about the policies of the tax-exempt organization, while acknowledging “information about policies isn’t required” under the tax laws. Question 13 in Part VI asks: “Does the organization have a written whistleblower policy?” The IRS explains in the instructions that it believes having a whistleblower policy is one indicator of good governance practices.