Other Whistleblowers (Part 3) – What Happens to the Wrongdoers

Other Whistleblowers (Part 3) – What Happens to the Wrongdoers

Justice in the whistleblowing project hinges on two questions:  

1.       Is the wrong corrected and, if appropriate, is the wrongdoer found guilty and punished for what he did?

2.       Is the whistleblower protected or, at least, made whole for what she suffered?

Successful whistleblowing programs can achieve that justice.  In them, disclosures of wrongs and inefficiencies are welcomed.  The identities of whistleblowers are protected.  Whistleblowers do not suffer retaliation for their disclosures, and they may even be rewarded.  The wrongs are promptly corrected, and those who committed them are disciplined.  That may happen sometimes.

Suits filed pursuant to the False Claims Act or the Dodd-Frank Act can compensate the whistleblower nicely in the rare instances when they are successful.  The SEC received 3,923 Dodd-Frank whistleblower tips in 2015 and made just 150 awards (4% of the number of tips) worth $38 million.  False Claims Act suits resulted in $242 million of awards to whistleblowers, relating to fewer than 300 suits.

While these few cases appear to compensate whistleblowers and their attorneys, justice is not complete.  Even after agreeing to expensive settlements, the companies involved seldom admit their wrongdoing.

Take the case of 21^st Century Oncology.  Joseph Ting, a physicist at a Florida radiation oncology center, claimed that 21^st Century billed Medicare for procedures that served no medically appropriate purpose.  In settlement, 21^st Century Oncology agreed to pay $34.7 million to the federal government.  Of that amount about $7 million would be paid to Ting.  This good news for whistleblowers was partially offset by the fact that company admitted no wrongdoing in the settlement.  It also said that no patients were harmed by its actions.

Whistleblowers hope that a bad situation will be corrected.  Edward Snowden expressed the feeling of many whistleblowers when he said that his greatest fear was that nothing would change as a result of his disclosures.

More often the results of whistleblowing are mixed.  Snowden’s disclosures led to some restrictions on NSA date gathering, but they were far from as extensive as Snowden and some others had hoped.  A couple of my complaints led to apparent corrections and the rest had no effect at all that I could see.  Snowden is stuck in Russia, and I am at home, despite our limited successes.

But what if the disclosure is effective?  The wrongdoer is fired, the company is punished, or the wrong is corrected, and the whistleblower still fails to find justice? 

The disclosures of some whistleblowers lead to unequivocal successes.  The complaints Michael Hawley made were for the most part verified by the County of San Diego, and the CEO accused of wrongdoing was terminated along with her husband.  But Hawkey’s success did not translate into getting his job back after he was fired.

In the cases listed below, we know something of what happened to the wrongdoers.  Despite the eventual validation of their disclosures, the whistleblowers did not get their jobs back.  With the possible exceptions of Michele Gutierrez, who negotiated a $2 million settlement, and Kathleen Carroll, who was awarded $3.1 million after a suit that went on for six years, they have not come close to receiving just rewards for their honorable deeds.  Neither Gutierrez nor Carroll returned to her position.

There are, then, different possible outcomes for the whistleblower and the wrongdoer, with degrees of justice that range from success to disaster from the perspective of the whistleblower:

WB suffers retaliation?

Yes

No

Wrong corrected?

Yes

No

Yes

No

Wrongdoer punished?

Yes

No

Yes

No

Yes

No

Yes

No

Whistleblower compensated?

Yes

No

Yes

No

Yes

No

Yes

No

Rewarded

Whistleblower Disclosures Vindicated, But Still the Whistleblowers without Jobs

Whistleblower (Date of recent report)	Accusation	Following Accusation	Result for Whistleblower
Boshko (8/18/16)	Refused sexual advances of school president	President was fired	Demoted, placed on leave, then fired
Carroll (8/19/16)	Misreporting to State, failure to report educator misconduct on a timely basis, other improper actions	Investigation confirmed some of her claims	Fired but 6 years later won jury decision for $3.1M
Gutierrez (7/25/16)	Improper payment	Chair who ordered payment resigned as CEO, Board chair, bylaws changed	Demoted, fired.  Reportedly negotiated $2M settlement
Howell (8/10/16)	Town officials defrauded FEMA	Officials indicted	Fired.  Suit still pending after 8 years
McQuery (8/16/16)	College coach sexually abused minor	Coach convicted of sexual abuses	Placed on leave, then fired
Moore (8/16/16)	Proposed promotion of person who was target of harassment investigation	Person was promoted.  Boss was convicted of corruption charges.	Fired, settled suit for $150,000 (including $60,000 of legal fees)
Nisewarner (8/24/16)	Personal use of government vehicle, conflict of interest in purchasing procedures	Policy violations were addressed.	Fired, settled suit for $40,000
Nunn (8/25/16)	Criminal activity & ethical violations	President resigned, others fired	Demoted, relocated, ostracized
Thorell (8/16/16)	Mispricing securities in trading portfolio	Firm closed	Quit before he was identified.  Avoided prosecution for participation.
Vildasol & Flores (8/22/16)	Official used state employees in reelection campaign, misuse of public funds	Official lost reelection	Placed on leave, then fired.  Suit still pending after 5 years.

Others’ Whistleblowing Experiences (Part 2) - Michael Hawkey

Others’ Whistleblowing Experiences (Part 2) - Michael Hawkey

When individuals talk about their whistleblowing, they do not dwell on comparisons to others’ experiences.  Each experience seems unique in the moment.  But the banality of whistleblowing means that what each of us goes through is pretty common and may be nearly duplicated in another’s experience.

Consider Michael Hawkey, who was CFO at Mental Health Systems, a San Diego, CA-based nonprofit.

Like HomeFirst Services of Santa Clara County, where I was CFO, Mental Health Systems (MHS) is largely an extension of government services:

-          $73 million of MHS’ total 2015 revenue came from government contracts; $2 million came from patient fees and just $256,000 from contributions. 

-          At HomeFirst revenue that came directly or indirectly from government sources accounted for $10 million of $11 million in total revenue and $1 million came from cash contributions, of which more than half was spent in getting those contributions in the door.

Both companies were under financial pressure when Hawkey and I blew our whistles:

-          At June 2015, MHS was in technical default on its $8 million line of credit.  Since 2012 it had burned through $8 million of cash – $3 million in 2015 – and with just $3 million left in the credit line, things were tight.  In March 2016, it missed its retirement payment due date. 

-          From 2012 to 2015, HomeFirst burned $1 million of cash, and it needed a special grant from Santa Clara County in order to cover its payroll in early 2015.

They both had smaller run-ins with government monitors in the past:

-          MHS had an overbilling problem in 2006 and an employee fraud, discovered in 2014, that resulted in $407,000 of invalid billings.

-          HomeFirst (then called EHC LifeBuilders) overbilled HUD by $1.2 million in 2003-2006 and had a licensing issue in 2008.

Neither company offered a systematic description of how money was spent in its programs or what results were achieved[1].  And both companies played loose in their financial reporting on their way to looking good[2]:

-          Despite its contribution revenue and its website, Facebook, YouTube, and Twitter presences, MHS reported no fundraising expenses.

-          As I claimed to the AICPA, in 2015 HomeFirst cut its general administrative expenses in half with an undiscussed change in its accounting practice.

Before we decided to become becoming whistleblowers, Hawkey and I had comparable work histories:

-          Hawkey, 58, had been CFO of MHS for 14 years when he wrote his April 2016 complaint letter.  He was named CFO of the year by San Diego Business Journal in 2007 and 2008, and he was nominated for the award again in 2011.  An MBA, his 26+ year career spanned nonprofit and international for-profit companies.

-          I was 65 and had been HomeFirst’s CFO for seven years when I made my disclosures.  I was a finalist for the CFO of the year award by the San Jose Business Journal.  I had worked in nonprofit and international for-profit companies during the 33 years since I received my MBA.

Our bosses were also comparable:

-          At MHS, Kimberley Bond, 42 and a licensed family therapist, was nominated for the “Most Admired Nonprofit CEO “award by the San Diego Business Journal in 2015.  She was paid just 11% more than Hawkey.  Bond was fired a month after Hawkey was terminated.

-          My boss, Jenny Niklaus, a licensed family therapist and 45 when she fired me, was named one of the “Top 40 Under 40” by the Silicon Valley Business Journal in 2004 and was called a “Woman of Influence” by the San Jose Business Journal in 2013.  Niklaus was paid 6% more than I was.  Niklaus decided to go to work for a much smaller nonprofit six months after she fired me.

Each of us accused our employers of committing a number of legal and ethical violations:

-          Hawkey complained to the County of San Diego that MHS was inappropriately funding a for-profit subsidiary, was billing for reimbursement of expenses that had not been paid or were unsupported (in violation of government rules), and had arranged for the undisclosed employment of the CEO’s husband in a well-compensated position reporting to her.

-          I complained to different public agencies about eight legal and contractual suspected misdeeds and two failures by local and federal agencies to recover money held improperly by HomeFirst.

Hawkey and I each knew about – or had reason to suspect – our company’s wrongdoings years earlier, and we had tolerated them.  Then something changed or the accumulated annoyance pushed us to where we had not been.  Our disregarded advice about negative cash flows – HMS’ for-profit subsidiary’s losses and HomeFirst’s own – increased the discomfort we felt.  From December 2015 until Hawkey was put on leave, Bond’s husband reported to Hawkey, which would have been a challenge.

So far things have progressed in similar ways for each of us.

-          Hawkey was placed on a paid leave for three months during an investigation and then fired.  Perhaps because of MHS’ size and the types of violations he disclosed, his complaints received coverage in the local press.  In addition, a County of San Diego investigation confirmed some of his complaints with the result that the company fired the CEO and her husband and said it would fix things going forward.  Hawkey was, of course, fired in May 2016, but it is too early to see what legal actions he will take,

-          I was fired in June 2014, three months after I told my boss that I had blown a whistle on two issues.  During that delay I disclosed more suspected wrongdoings.  Two of my complaints were investigated, and HomeFirst agreed to fix them going forward.  The others were mostly ignored by government agencies, and they got no traction with media.

-          MHS’ website made no mention of Hawkey’s allegations, the County investigation, or the terminations of Hawkey, the CEO, and her husband.

-          HomeFirst did not publicize the departure of its CEO or other officers or its need for a special County grant to make payroll.

During your whistleblowing project, you may consider yourself unique and heroic, and the results are likely to be personally tragic.  Still, you are only one among millions who observe corporate wrongdoing, one among hundreds of thousands who report the wrongs, and one among tens or hundreds of thousands who are punished each year in the U.S. for whistleblowing.  It happens all the time.

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[1] See also Stern, Ken. With Charity for All. New York: Doubleday. 2013

[2] See also Krishnan, R., M. Yetman and R. Yetman. “Expense misreporting in nonprofit organizations.” The Accounting Review 81.2 (2006): 399-420

Others’ Whistleblowing Experiences (Part 1)

Others’ Whistleblowing Experiences (Part 1)

Popular media accounts of whistleblowers tend to involve public enterprises where federal laws are violated, and the National Whistleblower Appreciation Day praises federal whistleblowers, not small-time players like me.  Stories of big-time whistleblowers can seem striking, but they are also uncommon. 

When disclosing suspected wrongs is seen as a fundamentally banal project, the experiences of whistleblowers become unexceptional and they fall into familiar narratives.  The tales of small-time whistleblowers are difficult to locate, but they can be found.  Over the past week, several stories echoed my experiences in dealing with the wrongs that I alleged HomeFirst committed.

As I found at HomeFirst, wrongs are not isolated incidents but they generally extend over long periods.  Multiple wrongdoings often build on each other until a whistle is blown:

1.       Patrick Leonard was a City administrator who was paid less than he had been promised.  His complaints about that led to more promises that were not kept and more discontent.  Then he began to identify legal violations.  He is not a retiring man, and he was warned not to speak out at a public meeting.  He did anyway and was fired.

2.       Mark Nelson continued his internal complaints about operations for two years before he was finally fired.

3.       Timothy Prescott & Troy Whitney were fired after they testified that a fellow employee had been injured by unsafe equipment 2½ years earlier.

4.       When wrongdoing continues in a variety of forms, it can indicate an amoral culture.  George Moore recommended that a man under investigation for sexual harassment not be promoted as the State Attorney General’s Chief of Staff.  The Attorney General, who is fighting criminal charges on other matters and whose law license was suspended, fired Moore shortly afterward and promoted the accused man as planned.

5.       Kenneth Bouchard, a city planner, investigated possible wrongdoing at the request of a councilmember and found himself the object of ostracism and disciplinary actions because he didn’t behave in the way “we do things around here.”

6.       On the other hand, Richard Patton was abruptly suspended and investigated days after he reported two complaints, five years after he was first hired.

The whistleblowers’ stories usually strike me as compelling and believable, but when you accept that whistleblowers are ordinary individuals who are fallible, you can sometimes have your doubts.

7.       Michael Hollett had been a university police officer for five years when a new chief was hired.  His new boss, who is black, wanted to shake up the underperforming unit – “out with the old and in with the new,” he said.  Hollett, who is white and Mormon, was eventually fired, and he sued, claiming that he was fired for racial, religious, and age reasons.  Another employee, who is black, claimed that she was fired based on age, gender, and disability.  I can imagine arguments on all sides of this situation.

8.       Police Officer Steven Blakeney cooperated with the FBI’s investigation of corruption charges against the city’s mayor.  He suffered retaliations and was eventually fired.  The city claimed that he was fired for criminal violations – two women he’d met in a bar were in his home the next morning and he asked another police officer to transport them away.  Blakeney was convicted on federal charges.

The whistleblower’s effectiveness is determined not by absolute morality but by the legal enforcement authorities.

9.       Sharee Santorineos complained that employees at the hog and pig farm where she worked beat the animals.  Her complaint led to an investigation that found no problem.  The Chicago Tribune reported that the result was typical: a 50% reduction in the number of State Bureau of Animal Health and Welfare inspectors coincided with a drop in identified animal welfare violations from 200 in 2005 to 29 in 2015, only one of which in 2015 resulted in a prosecution.

10.   A village claimed that police officer Wade Proctor did not qualify for protection as a whistleblower under New Mexico’s laws (specific public disclosure & proof of punishment for the disclosure he made).

11.   The U.S. Office of Special Counsel, an independent federal investigative unit, supported Anthony Salazar in his suit saying that evidentiary standards on whistleblowers are too high.

Some whistleblowers escape the usual pattern of staying put until retaliations result in their terminations and lawsuits.

12.   Helen Dragas waited until she was off the Board before she spoke out publicly on the problem.

13.   Martha Fitzwater Pigott apparently avoided a lawsuit and achieved an amicable separation agreement.

Sometimes wrongs occur by accident.  At HomeFirst, the County overbilling and the California licensing requirement incidents happened largely by accident (although perhaps an indifference to whether actions were right came into play).  A reading of the experiences of other whistleblowers (and other incidents at HomeFirst) tell a different story: there is just a lot of wrongdoing that goes on – first, the wrong that is initially alleged and then the retaliations.

Reports of whistleblowing activities 

Whistleblower (Date of recent report)	Alleged Wrongdoing	Retaliation	Employer contentions	Status
Blakeney (8/3/16)	Extortion & other corrupt acts	Picture of rat on office door, computer clearance removed, banned from city property	Criminal violations were the reason for termination	Fled suit; convicted of federal violations
Bouchard (8/6/16)	Improper use of government funds	Ostracism, disciplinary actions, constructive termination	Talked to people he should not have	Filed suit
Dragas (8/7/16)	Concealment of university investment fund		She miscategorized the fund	Left Board and went public
Hollett (8/4/16)	Racial, religious & age discrimination	Denied training & overtime, threatened in front of peers, fired	Performance deficiencies, “get rid of old & bring in new”	Filed suit
Leonard (8/5/16)	Illegal health benefits paid, conflicts of interest, kick-back payments	Denied raises, office moved to remote abandoned trailer (2 mi from main building, w/o bathroom)	Used profanity on job	Filed suit
Moore (8/6/16)	Promotion of person accused of sexual misconduct	Fired	Fired for cause	Filed suit
Nelson (8/4/16)	Order to falsify water test results	Write-ups, suspension, reduced pay, unsafe job assignments, fired	Lack of responsibility, job performance deficiencies	Settled suit for $300,000
Patton (8/5/16)	Illegal contract splitting, improper residency of Board member	Suspension, investigation, diminished duties, failed to renew contract	Misconduct & other performance concerns, disrespectful & threatening tone	Filed suit
Pigott (8/5/16)	Violation of federal contracting rules	Fired		Negotiated six months emergency pay
Prescott & Whitney (8/4/16)	Unsafe work conditions	Fired	Failed to report use of defective equipment	Filed suits
Proctor (8/4/16)	Ordered to change investigation report	Fired	Made threatening comment, does not qualify as whistleblower	Filed suit
Salazar (8/5/16)	Missing vehicles, misused fleet cards	Set new performance standards, fired	Failed to satisfy performance improvement plan	Filed suit
Santorineos (8/7/16)	Abuse of animals			State investigator found no abuse