Lana is a CPA and works as an internal auditor for Dynamite, Inc. As she was performing a revenue timing test, for the internal audit schedule and the external auditors, she noticed that the Western division consistently kept the books open 4 days into the next quarter. Lana immediately reported to the Chief Internal Auditor; together they took the issue to the CFO and Controller. The CFO assured them that the issue would be resolved. It has been 90 days since the meeting. Lana is considering blowing the whistle but cannot decide who to tell and when.What are the ethical issues of concern for Lana? What would you advise Lana to do, how, to whom and in what order, assuming she could qualify for a reward under Dodd-Frank?

Question

What will be an ideal response?

Answer 1

First, Lana does have a confidentiality requirement to her employer, Dynamite, Inc. She needs to consider that any disclosure of the event outside the company raises ethical questions. However, Lana would be protected against any ethics violations if she reports under Dodd-Frank because the confidentiality obligation is waived when regulatory requirements sanction such reporting. Dodd-Frank does so to protect the public interest above all else.

Under Section 10A of the Securities Exchange Act of 1934, Lana should:

• Determine whether the violations have a material effect, quantitatively or qualitatively, on the financial statements.
• If yes, has management, or the board of directors, caused management to take remedial action, including reporting externally, if necessary?
• If no, then the individual must make a formal report of the issue with conclusions on the effect and provide the report to the board of directors.

Lana should complete any of the above steps that has not yet been done. Having done the above steps, then Lana will have first reported the violation internally. She will need to wait another 30 days (or a total of 120 days) before going to the SEC. She will also have to believe that the disclosure is necessary to prevent substantial injury to the financial interest of an entity or its investors and reasonably believes the entity is impeding investigation of the misconduct.