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NOCLAR, a whistleblower process with a twist or two…



Published on December 18, 2017

Ethics is currently on every CFO’s mind. All CFOs want to avoid the scandals and challenges of their company being embroiled in allegations or actual ethics issues that can destroy so much of the enterprise value.

In July 2017, the International Ethics Standards Board for Accountants (IESBA), an independent standard-setting body governed by the International Federation of Accountants adopted NOCLAR, the new standard regarding the disclosure of Non-Compliance with Laws and Regulations. While the standard differentiates the work of accountants in the role of auditors, those working for audit firms in a non-audit capacity and accountants in other organizations, some of the application issues in the Canadian regulatory context are very similar no matter where accountants operate.

NOCLAR as part of the ethics program

By itself, NOCLAR is a tool, not a solution and certainly not an ethic strategy for compliance. One can think for example about how we expect employees and colleagues to know what is required under NOCLAR requirements, what is an illegal act that requires reporting and who they need to report it to, and what the overall NOCLAR process is all about. This will differ throughout each organization. Partners, CFOs and senior executives must commit to guiding their people to deal with suspected cases of non-compliance with laws and regulations, who to talk to and when to do it. Issuing a policy is not even sufficient. The whistleblower process is only a portion of a comprehensive ethics program. To be effective, NOCLAR must be supported by learning, policies, communication and escalation processes.

Fortunately, most ethic programs already include a whistleblower component and most organizations have a good opportunity to integrate the principles of NOCLAR into ethics program to avoid conflicting messages.

When is a fraud a fraud?

Identifying voluntary acts of non-compliance with laws and regulations is very different from finding a mistake committed in good faith. Accountants are not lawyers nor are they judges of intent. By definition, a fraud is committed with intent. Intent is not something even a forensic team can opine on easily, much less most of us accountants. This is another reason why it is so important to provide our teams with a framework for seeking consultation before reporting. The communication and escalation processes must assist employees to do the right thing without creating a larger issue. Even if the non-retaliation provisions in the standard are very strong for reporters, the best alternative is still to avoid controversy by avoiding the issue altogether while leveraging the adequate support process. This does not mean restricting reporting, this is really a matter of supporting the reporters.

In addition, reporting is a good thing but it assumes the reporting is done to a governance body not involved in the act of non-compliance. How is the accountant supposed to know who is involved? Are we expected to investigate ourselves before reporting? Yet reporting inadequately risks jeopardizing the investigation. Building a support process where the employee does not feel limited in the reporting and has the confidence to report is key to enhancing the process effectiveness.

Does NOCLAR supersede professional secrecy?

In Canada, all professional accountants are subject to the provincial institute’s code of conduct, which includes very strict professional confidentiality rules. Many provinces are in the process of evaluating the impact of NOCLAR on professional secrecy or confidentiality requirements but not all have actually amended their code. The last thing we all want is a Good Samaritan disclosing NOCLAR and at the same time committing, a professional ethic violation, which can cost them on a personal level… Again, how do we support our people in understanding their provincial code of conduct?

Competing for information

The CFO-listed entities also understand that multiple whistleblowers or reporting processes are available to employees, suppliers and other stakeholders. Not only do many companies use externally managed third-party reporting service providers but now many securities commissions in Canada and the U.S. also have pay-for-tips type of reporting processes competing for these tips. What is appropriate under what circumstance is a challenge that has still not been mastered.

NOCLAR will undoubtedly provide useful consistent tools for accountants and global organizations around the world but like for any other tools, learning to use that tool will be required.



André Vincent André Vincent

André is a partner and the Chief Ethics Officer. With more than 25 years of experience, André has worked with public and private companies in various industries, including telecommunications and mining. He has a post graduate degree in accounting and has received a U.S. CPA, in addition to his CPA and CMA designations in various Canadian provinces.



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