What is the Whistleblower System (Whistleblower System)? Explanation of the benefits of introducing the system and the process of handling cases.

The Whistleblower System (Whistleblower System) is important to deter and detect internal fraud by employees, such as embezzlement and information leakage. This article provides an overview of the whistleblower system, its merits, points to note, and the responses and duties required of companies and those in charge. Forensic investigations when an investigation is conducted upon receiving a whistleblower report are also introduced.

What is the Whistleblower System (Whistleblower System)?

The whistleblower system is a system that encourages the reporting of illegal activities within a company by establishing a dedicated reporting channel for directors, officers, employees, and others. If an illegal act by an employee comes to light, the company will be subject to criminal penalties, administrative penalties, etc., and its social reputation will also be damaged. The introduction of an internal reporting system is effective from the perspective of avoiding risk by detecting and preventing the occurrence of misconduct or signs of misconduct within the company.

Revision of the Whistleblower Protection Act makes it mandatory to establish an internal reporting system.

The Whistleblower Protection Act has been revised (effective June 2022), making it mandatory for companies with more than 300 employees to have a whistleblower system in place. This Whistleblower Protection Act includes various rule changes to strengthen the protection of whistleblowers, in addition to the development of the system in companies. The purpose is to make it easier for companies and other organizations to find and correct wrongdoing within their own companies, as well as to ensure that whistleblowers feel safe and protected in their reporting.

As we see and hear in the news, corporate scandals continue to occur. As such scandals have become a social problem, companies are required to detect such misconduct within their own organization and correct it before the damage becomes more widespread. The following is a step-by-step explanation of the introduction of an internal reporting system and the maintenance of such a system.

Advantages of Introducing an Internal Reporting System

For companies with less than 300 employees, the introduction of a whistleblower system is not mandatory, but rather an effort requirement, but even for small companies, there are many advantages to introducing such a system.

Internal fraud can be deterred or detected at an early stage.

The larger the size of the company, the more difficult it becomes to deal with internal fraud, and the more serious the impact on the company. Having an internal whistleblower system in place can deter fraud and lead to early detection, thereby limiting the damage.

Prevent reporting outside the company, such as to government agencies.

If an employee who discovers an illegal act immediately reports it to an outside government agency or the mass media, the company will be forced to take action before it has decided on its policy or position, increasing the risk of a mishandled response. Inappropriate responses can result in a significant loss of public reputation. With an internal whistleblower system in place, if an illegal act should occur, the company will be able to make a firm decision on its policy and opinion, and will be more likely to take appropriate action.

Leading to social reputation and credibility

The risk of fraud cannot be completely eliminated. Assuming that it will happen, it is necessary to establish a flow to detect and resolve fraud in the company through the whistleblower system. This will enhance the company's reputation in society, and will also lead to gaining the reputation and trust of business partners and other external parties.

Points to keep in mind when implementing an internal reporting system

This section explains the disadvantages and points to note when introducing an internal whistleblower system.

It is time-consuming to introduce a new system.

When introducing a new whistleblower system, it takes time and effort to first understand the status of the company's organization, go through internal settlement, create a whistleblower system and internal rules tailored to the actual situation, and disseminate them throughout the company. It is also necessary to seek assistance from a lawyer who is familiar with the whistleblower system.

Internal operational burdens will be incurred.

In addition to the introduction of the system, there is also the operational burden. A person in charge will be appointed to handle the system, but if the rules for reporting are not properly defined, a large number of trivial matters may be received, which could put pressure on operations and costs. When introducing the system, it is necessary to design it carefully based on the actual situation of the company.

What a company should prepare for when introducing a whistleblower system

The following is an explanation of the process that needs to be taken by legal staff when a company introduces an internal reporting system.

Determine the contact person and the person in charge

When introducing a whistleblower system, it is necessary to appoint a person in charge of handling the matter. Under the law, this person is called a "whistleblower. A person in charge of legal affairs is appropriate in light of his/her knowledge and independence within the company. The person does not need to be a full-time whistleblower, and can be assigned to other duties at the same time.

Establish internal rules regarding the whistleblower system.

Once the contact person and the person in charge are determined, the whistleblower system should be designed and internal rules should be created. Design a system that suits the actual situation of the company, such as how to handle the flow of responses when a report is received, and then incorporate it into the internal rules.

Provide internal education and publicize the whistle-blowing system.

In order for the whistleblower system to function effectively, it is necessary to raise awareness of the system within the company. Regular training and education are necessary to raise awareness of the system.

Establish rules and mechanisms for confidentiality

Confidentiality is important for the whistleblower system so that employees can use the system with peace of mind. It is essential to keep the fact that a report has been made confidential, to make sure that only the minimum necessary persons cannot know any identifiable information, and to take steps to prevent any attempts to identify the person.

Establish a reporting contact outside the company, such as a lawyer's office.

In order to conduct investigations from an objective standpoint, the person in charge of whistleblowing must be independent from other officers and employees, but there are inevitable limits. It is effective to establish an external contact point in addition to the internal contact point. By expanding the range of options, this will encourage reporting.

Flow of response when a report is received from an employee

What is the flow of response to an actual whistleblower report?

STEP 1: Take immediate initial action against the employee who made the report.
First, respond promptly to the employee who made the report. Tell the employee that you have received the report, that you will investigate the matter, that confidentiality will be maintained, and that you will not treat the informant in a disadvantageous manner. If left unchecked, the employee may think he or she has been ignored and report the incident to outside government agencies or the media. A prompt initial response is important to gain the company's trust.

STEP2 Investigate the reported misconduct.
Investigate whether the reported misconduct is really taking place within the company, to what extent and to what scope, who is involved, and what are the causes. Legal expertise is often required, so it is advisable to design a system that allows for the use of the expertise of legal counsel or other legal experts.

STEP 3 Take prompt corrective action if fraudulent acts are found.
If fraud is discovered as a result of the investigation, corrective measures will be taken promptly. It is important to do so without hesitation, as it will lead to the sound development of the company. Afterwards, we will monitor whether the corrective measures are working properly and whether the fraudulent behavior continues.

STEP 4: Inform the whistleblower of the results of the investigation.
The results of the investigation are shared with the employee who made the report. Even if no wrongdoing is found, do not fail to inform and explain to the employee who made the report. It is important to make the employee feel that he or she can report the matter with confidence and that the contact point is trustworthy.

Use of "forensic investigation" is effective for corroboration investigation of whistleblowing

Forensic investigation" is an effective investigation to be conducted after receiving an internal report. The following is an introduction to the type of investigation.

What is a forensic investigation?

A forensic investigation is an investigation that gathers and analyzes information related to an incident or accident to uncover evidence of a crime or wrongdoing. In addition to scrutinizing the content of a whistleblower's report, it can also determine the cause of the incident so that measures can be taken to prevent its recurrence, and by clarifying responsibility, the company can prepare for litigation in the event that it is held liable for the incident.

Recently, AI has also been used for forensic investigations.

The use of AI (artificial intelligence) is now an indispensable tool in modern forensic investigations that deal with huge amounts of data. By having an expert look through a small number of sample files and having AI learn criteria, it can sort large amounts of data into relevant and irrelevant categories. This allows a small number of people to perform simple data sorting tasks that must be done at the beginning of a survey in a short period of time, which not only improves the efficiency of the survey, but also allows the experts to concentrate their resources to achieve higher accuracy.

Forensic investigations are recommended to consult a professional investigation company.

It is recommended that forensic investigations be conducted by an investigation company rather than by the company itself.
Even if there is an internal report that "that person is cheating," it is not always possible to obtain clear evidence. In some cases, the information may have been cleverly removed. If the number of terminals to be investigated is several hundred, it is impossible to handle it with in-house resources. By utilizing specialized software and AI from a research firm, an investigation can be conducted reliably, efficiently, and on a budget appropriate for the scale of the investigation.

FRONTEO" realizes large-scale and short-term forensic investigations by utilizing its self-developed AI

FRONTEO has been a pioneer in forensic investigation in Japan since its establishment in 2003, and has worked to solve a wide range of corporate issues. We have an established reputation for our technology and know-how based on our outstanding experience.

By combining our experience in handling cases with our own AI engine, we have achieved a high level of accuracy and efficiency that no other company can match.

We have data centers in Japan and South Korea, and we have full security measures in place. We seamlessly provide services to our clients' headquarters, local subsidiaries, and law firms. We provide prompt support through our global operations.