Dodd-Frank Whistleblower Rules
On May 25, 2011, the Securities and Exchange Commission issued its final rules to establish a new whistleblower program as required by Section 922 of the Dodd-Frank Act. The new rules are linked below. AICPA is analyzing the final rules and plans to work with policymakers regarding any ongoing profession concerns.
Dodd-Frank Act Section 922 requires the Securities and Exchange Commission to establish a new whistleblower program that will pay awards, subject to certain limitations and conditions, to whistleblowers who voluntarily provide the SEC with original information about a violation of the securities laws that leads to a successful enforcement of an action brought by the SEC that results in monetary penalties exceeding $1,000,000. The amount of the award is required to equal 10-30% of the monetary sanction.
In its proposed rule, the SEC would have allowed whistleblowers to report only to the SEC and bypass a company's internal reporting procedures that may be established by a company, even including the procedures that are required under Section 301 of the Sarbanes-Oxley Act. The final rule calls for direct reporting to the SEC, but provides additional incentives to whistleblowers who report internally first.
The AICPA believes that it is good public policy, good corporate governance, and in the best interest of investors to ensure that allegations of financial reporting impropriety get to independent audit committees and auditors in a timely manner. The AICPA maintains that the SEC should implement the Dodd-Frank provision in a manner that ensures audit committees and auditors obtain information from relevant whistleblower complaints and avoid a rule that would bypass or withhold the timely sharing of complaints with them.
Additionally, Dodd-Frank Section 728 requires the Commodities Futures Trading Commission to establish a whistleblower program similar to that required of the SEC. While Section 922 of Dodd-Frank provides an exemption for auditors from receiving awards related to the SEC registrants, no explicit exemption was included relative to organizations under CFTC jurisdiction. The AICPA is concerned about the implementation of these provisions regarding CPAs and their staff.
The CAQ, Chamber of Commerce, and AICPA comment letters strongly urged the SEC and CFTC in final rules to, at a minimum, require concurrent whistleblower reporting to the entity and the respective Commission as a condition for an award. AICPA asked that the agencies extend the time for entities to report on potential wrongdoing to 180 days to allow more time for investigation of internal whistleblower reports (the SEC adopted a 120-day window).
The House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises held a hearing on the whistleblower provisions on May 11, 2011 at which Robert Kueppers of Deloitte testified on behalf of the profession. A copy of his testimony is linked below.
Representative Michael Grimm (R-NY) introduced a bill, the Whistleblower Improvement Act of 2011, H.R. 2483, to improve the Dodd-Frank whistleblower provisions. AICPA worked closely with Congressman Grimm to insure that audit committees will receive timely information regarding whistleblower information that reasonably could impact the quality of financial reporting. The bill was voted out of the Capital Markets Subcommittee of the House Financial Services Committee on December 14, 2011. The AICPA sent a letter in support of the bill to all Members of the Subcommittee in advance of the markup.
December 12, 2011 AICPA letter to Members of Capital Markets Subcommittee
The Securities and Exchange Commission issued its final whistleblower rules on May 25, 2011. The Commission's press release and link to rule may be found here.
May 11, 2011, Bob Kueppers, Deloitte & Touche, testimony on behalf of AICPA before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises.
Copy of Dodd-Frank Legislation
The law and all major Congressional actions leading to passage are available on the Library of Congress's THOMAS website by using the advanced search function and searching for H.R. 4173 by bill number under the 111th Congress.
Chamber of Commerce comment letter on the SEC proposed rule
AICPA's comment letter on the CFTC proposed rule
Chamber of Commerce comment letter on the CFTC proposed rule
Kate Schmucker Kiley
Director, Congressional and Political Affairs