IN THE TRENCHES

How Whistle-Blower Policies Protect Charity Workers Who Report Ethics Lapses

Trying to decide whether to report something suspicious that they have observed on the job can fill employees with anxiety. Speak up about the maintenance contract awarded to the boss's father-in-law, for example, or about inappropriate use of a charity's property by a supervisor, and the employee risks retribution -- and could even be fired. But the decision to stay silent can also equal tacit consent to activities that may be illegal, unethical, or simply against office rules.

Such is the dilemma of the whistle-blower, but Constantine Papadakis, president of Drexel University, in Philadelphia, hopes to spare his employees from ever having to grapple with it.

A year ago, Drexel instituted a system for its employees and students and the public to anonymously voice concerns and complaints. Anyone who spots something that seems to violate the law, or the university's own policies, can call an anonymous hot line. The phone line goes directly to Drexel's chief compliance officer. "Only that person has access to the telephone line, not the secretary or anyone else," says Mr. Papadakis. Anonymous complaints are then routed to the most appropriate office for investigation -- for example, to the general counsel, the head of human resources, and so on. Callers are promised by the university that they won't face retaliation for speaking up.

Since its inception, the hot line has received about two telephone calls per month, says Mr. Papadakis. Callers are not restricted from discussing any subject, he says, and about half of the calls have been on personnel issues -- for example, one caller complained about not receiving a promotion. Other calls were about more substantive matters, such as unauthorized access to the university's computer system, and a suspected irregularity in the hiring of a contractor. In each case, there has been an investigation. Thus far, no impropriety has been uncovered.

"But this is a great way to communicate," Mr. Papadakis says. Without the hot line, he notes, "the information would not have come through, because the person was worried, or didn't want to do be identified, and we would have missed their contribution."

The hot line and the investigation procedure were part of Drexel's response to the Sarbanes-Oxley Act of 2002, named after the senator and representative who sponsored it. Although the law was intended to regulate for-profit companies and applies to charities in only two limited areas, some nonprofit employers are beginning to heed the law's emphasis on protecting whistle-blowers, encouraged in these efforts by BoardSource and Independent Sector, organizations in Washington that help nonprofit groups deal with legislative and governance issues. (See "Nonprofit Groups Urged to Follow Governance Act," The Chronicle.)

Sarbanes-Oxley was signed into law by President Bush in July 2002, in response to a wave of scandals at such high-profile companies as Enron and Arthur Andersen. It was intended to create new governance standards to prevent other such calamities and protect the stockholders of publicly held companies, to ensure the independence of auditors, and to spell out consequences for document destruction, conflict of interest, and other sorts of shady practices. Sarbanes-Oxley also creates protections for employees that notice fraud or other malfeasance to "blow the whistle" without fear of retaliation.

The law was not enacted with nonprofit organizations specifically in mind, says John T. Palter, a labor and employment lawyer in Dallas. The few provisions of the law that either apply directly or indirectly to nonprofit organizations are, for the most part, issues for a charity's audit committee.

However, the whistle-blower-protection provision of Sarbanes-Oxley is also relevant for a charity's staff, finds an analysis of the law performed last year by BoardSource and Independent Sector. Their recommendation: Nonprofit employers should fashion confidential and anonymous systems for their workers to report fraud and malfeasance without fear of retaliation.

"Every organization should have a policy about how an employee or a stakeholder with the organization can raise a questions or concern," says Larry Ladd, director of advisory services for not-for-profit organizations at Grant Thornton, an accounting and consulting organization in Boston.

Yet very few nonprofit groups have whistle-blower-protection policies -- and few have made a priority of creating such systems. Only 17 percent of nonprofit organization said they have such a policy in place, and of those that don't, only 21 percent say that they are considering adopting such a policy, according to a November study by Grant Thornton. (Even BoardSource is only now in the process of creating a whistle-blower policy, says Marla Bobowick, the group's vice president.)

The good news is that it's not that difficult to create these kinds of policies, says Mr. Ladd. "When talking with people about whistle-blower policies, I ask them to think of the analogy of their sexual-harassment policy, which is likely to incorporate the same elements," he says.

In any organization's policy and procedure handbook, and through regular reminders, he says, there should be detailed instructions about how to report a matter of concern. The process must ensure confidentiality and protection for anyone reporting issues or concerns, so that potential whistle-blowers feel safe from retaliation, says Mr. Ladd. (He defines retaliation as any kind of punishment, including firing, demotion, suspension, harassment, failure to promote, or any type of discrimination.)

At a smaller organization, the policy can be carried out in a straightforward way, says Mr. Ladd. "Designate one or two people, who are trusted and can be contacted relatively easily, as the receivers of the [complaints]. They need to be pledged to an appropriate level of confidentiality," he advises, meaning that they must protect whistle-blowers from exposure or punishment. Then, in the policy and procedures handbook, expressly state that all concerns go to the designated managers for investigation, and that retaliation is not allowed, he says. "Periodically remind everyone that the procedure exists by sending out a memo or e-mail message and by including it in newsletters or similar communications," he suggests.

It is important to make clear that the system is for issues that simply cannot be solved through the regular "chain of command," says Ms. Bobowick of BoardSource. "If people bring everyday complaints, that's just going to complicate things," she says.

At larger charities, such systems can get very elaborate in practice. For example, at Northwestern Human Services, a nonprofit organization in Lafayette Hill, Pa., that employs 6,500 people and provides mental-health, child-protection, and juvenile-justice services throughout the mid-Atlantic region, the cornerstone of the system is a hot line. The charity hired a national service to manage the line, paying $3,500 per quarter. The line, which fields questions from employees about the charity's policies and regulations as well as concerns from workers and clients, receives a heavy volume of calls -- more than 6,000 since it was created in 1998. Calls to the line have dealt with subjects such as personnel complaints and billing errors.

Daily reports on the calls are routed to nine people in Northwestern Human Services' compliance office for complete investigation, says Leah Pason, the charity's vice president for quality performance. The group strives to make the hot line accessible to clients and employees, who can opt whether to make their reports anonymously, and Northwestern provides every new employee with two hours of training on its entire grievance system, along with annual refresher courses.

Perhaps it is the idea that a whistle-blower-protection policy must involve such a complicated arrangement that prevents nonprofit organizations from adopting such policies, says Mr. Ladd.

"It's taking more time for news about [Sarbanes-Oxley] to disseminate to the not-for-profits, and it takes a longer time to move these kinds of decision through the process," he observes. "Perhaps there is also perhaps the idea that since we are a nonprofit, 'we are doing good work, and therefore fraud is less likely, '" he says. However, he says, that notion cannot protect charities from ethical lapses. "I'm afraid that nonprofits are still inhabited by fallible people. Wherever two people gather, fraud can happen."

Does your organization have a system for protecting whistle-blowers and fielding grievances? Tell us about it in the Share Your Brainstorms online forum.