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Compliance programs encourage employees to speak up

Rochester Business Journal
June 14, 2013

Rochester Institute of Technology's whistleblower hotline receives more tips today than when it began five years ago, and awareness of it is higher.
The hotline, operated by an impartial third party that investigates the alleged wrongdoing, lets individuals choose to remain anonymous.
Compliance programs like the hotline are growing in popularity. Employers offer them to encourage employers to come forward before going to an external entity. In some cases, handling matters internally could also avoid costly litigation.
"I've seen an enormous increase in corporate compliance programs designed to have employees come forward internally and raise issues before they go outside," says Matthew Fusco, an attorney specializing in labor and employment law with Chamberlin, D'Amanda, Oppenheimer & Greenfield LLP.
RIT's general counsel, Robert Colon, says it is in the school's best interest to encourage employees, contractors and the public to come forward with information about potential wrongdoing. The university must comply with a lot of statutes, rules and regulations, and whistleblower laws and mechanisms foster compliance, he says.
"As a federal contractor, you always attest to the fact that you complied with all these statutes. If you did something to violate the statutes, you call into question your status as a federal contractor," Colon explains, and losing federal contractor status would be a disaster for RIT, which receives federal money for student loans and research, among many other things.
He says the institution aims to create a compliance culture.
"I see the whistleblower statutes as being a win-win-not just for the employee, because it protects them from being terminated, but also for the employer, because it provides the employer with a mechanism to know what's going on in their business," Colon says.
If an investigation revealed a violation, he says, the school would report it to the appropriate regulating agency.
Self-reporting is in an employer's best interest, says Brian Feldman, an attorney in the government and internal investigations practice group at Harter Secrest & Emery LLP.
 "A lot of companies have a compliance program that includes an anonymous way to file a complaint. The government tends to give credit to companies who have effective compliance programs and disclose problems to the government," says Feldman, a former assistant U.S. attorney.
Self-reporting also can be cost-effective.
"If they have to self-report, they do so at a fraction of the cost," says Jeffrey Harradine, an attorney with Ward Greenberg Heller & Reidy LLP. "A lot of companies want to be good corporate citizens and come to the regulator and say, 'Look, I'm sorry, but we found we were doing x or y.'
"There is a reputational value in that, too. You don't lose your reputation like you would if you were the target of an investigation."
Though corporate compliance programs are designed to have employees come forward, typically there is no reward for doing so unless it is done with an agency such as the Securities and Exchange Commission or the Internal Revenue Service.
"Corporations don't have to worry about employees snitching on them because there are big pots of gold," Fusco says.
They would have to file a successful qui tam suit with a prosecutor or on their own to do that. Qui tam lawsuits are a way for whistleblowers to help the government stop fraud and also be rewarded for the risks they take.
Anonymous tip programs like RIT's do not require the filing of a lawsuit to move an investigation forward. But filing suit is required by the federal False Claims Act and New York's counterpart, enacted in 2007, and whistleblowing plays a significant part in those laws. Under the federal statute, a whistleblower also known as a relator must file a pleading in court, and then the government can decide if it wants to move ahead on the claim. That may take a while.
"It can take years for the U.S. attorney to review and decide," Fusco says.
A whistleblower can still file suit, however, if the government decides not to pursue the matter. Those cases are rare. In a recent federal appeals court case, a relator won more than $1 million from Cornell University's Medical College when the court decided the school was negligent in filling out forms correctly for a grant it received from the National Institutes of Health for a post-doctoral HIV research program. That suit moved forward after the government initially declined to pursue it.
As Fusco points out, the False Claims Act applies when an employer is cheating the government by filing false claims. A whistleblower cannot seek to collect for a matter that the government already was investigating, and a whistleblowing employee also cannot be the person filing the false claim.
The federal False Claims Act, or "Lincoln's Law," has been around since the Civil War, when President Abraham Lincoln believed contractors were defrauding the Union Army. Today it is stronger and is being used more than ever before because the community, jurors, judges and prosecutors are very concerned about fiscal accountability, Feldman says.
"This is a law that applies to any misuse of federal or state money. The federal and state government can get back three times the amount of loss. It's a very powerful tool for the government," Feldman says. "These days, the biggest target is health care. The FCA has been used to get billions of dollars from pharmaceutical companies, problem hospitals and physicians."
In 2008, the Department of Justice won a $75 million settlement in a qui tam case originally brought in Buffalo by employees of Kyphon Inc. The suit claimed the company had been encouraging hospitals to perform a spinal procedure called kyphoplasty on a more costly inpatient basis rather than on a clinically appropriate outpatient basis to receive higher Medicare reimbursement.
Feldman says the False Claims Act has also been used in a series of cases against mortgage lenders to hold them responsible for reckless lending.
Although the number of whistleblower statutes has increased in recent times, Fusco is concerned that whistleblower protection has not.
"There is not a single, blanket whistleblower protection statute," says Fusco, and whistleblower protection is offered in only a few industries, such as nuclear power and aviation.
Though whistleblowers often fear they will be fired for reporting potential wrongdoing, employers should appreciate their value, Harradine says: "Don't treat a whistleblower like a traitor but like a business asset or an informal compliance officer."
Fusco says: "If employees have information about employers violating the law, no matter what it is, there ought to be something that says an employee shouldn't be fired for doing so. There is no general protection for employees in New York for reporting illegal conduct by their employers, and there should be.
"The best thing employers can do is be honest."
Todd Etshman is a Rochester-area freelance writer.

6/14/13 (c) 2013 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email

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