With the passing of the Sarbanes-Oxley Act in 2002, employees in public companies received protection from retaliation when blowing the whistle on their employer’s fraudulent accounting practices…on paper anyway.

Today, almost seven years after the law was passed, there have been more than 1,000 whistleblower cases filed with the Occupational Health and Safety Administration. Of them, not a single whistleblower has “won” their case. Instead, they are either not heard, dismissed, or the whistleblower is ruled against.

I hardly think this is what Congress envisioned when they included section 806 – granting whistleblowers protection from retaliation – into the Sarbanes-Oxley Act. The goal was to prevent accounting scandals by relying on information from boots on the ground. The only way to get employees to expose fraud is by promising to protect them.

Over the years, a number of Department of Labor interpretations have diluted the original power of the SOX whistleblower protection. According to an article published by Fulcrum Inquiry, whistleblower claims must now pass the following three tests to be considered legitimate:

1. The Duty Speech Doctrine. This doctrine states that employees whose jobs require them to report fraud cannot be protected whistleblowers because they are just doing their jobs. The duty speech doctrine has been applied by at least one DOL judge, despite appearing nowhere in the text of SOX.
   
   
2. The “Definitely and Specifically” Clause. SOX requires that the whistleblower “definitely and specifically” communicate their fraud concerns in order to be protected. While the implication is that a whistleblower isn’t protected for making vague claims, its application has been much more strict. In one case, the protection claim was denied because the filer’s reports used the word “cheating” instead of the word “fraud” to describe the illicit activities she observed.
   
   
3. The “Reasonable Expert” Clause. Whistleblowers must be qualified to make their claims in order to receive protection. However, this clause has been used to dismiss charges on technicalities. For example, one accountant claimed internal accounting documents were fraudulent. The court denied protection because SOX only applies to external accounting reports, despite the fact that external reports are typically based on internal documents.
   

The Fulcrum Inquiry article makes an interesting observation about these three rules. “Only employees with expertise in the subject -- the kind of expertise that comes only from having job duties in those subject areas -- will be able to meet the definitively and specifically requirement,” the authors state. “But these sophisticated employees are the exact employees who would be disqualified from SOX protection under the duty speech exception or who would be subjected to the heightened reasonable expert standard.”

What these rules do is create a world where it’s nearly impossible for someone to report financial wrongdoing at their company. Instead, employees fear their employers and will ignore any problems rather than face termination. Lawmakers or the Department of Labor should realize the importance of whistleblower protection to shareholder value and give section 806 some teeth.

For the full Fulcrum Inquiry story, click here.

Patrick Harbin is Editor of The Accounts Payable Channel and Assistant Editor of The Accounts Payable Network.