Compliance Week February 22, 2005 Page 1

Case Study: Whistleblowing System At Overstock.com

By Matt Kelly February 22, 2005 his "case study" is the latest in a series of articles aimed at helping public companies understand how other organizations are using technology to comply with new regulations and standards. These are not advertisements or marketing vehicles for the companies mentioned; Compliance Week's editorial staff speaks with the public company that has deployed the technology, and the article is written without the inputand in many cases the knowledgeof the vendor. An Unexpected Buy Jonathan Johnson, vice president of corporate affairs at $494.6 million retailer Overstock.com, is quick to stress that his company provided adequate whistleblower channels well before the SarbanesOxley Act required them. Still, Johnson considered the system only adequate. For example, employees could write a letter to the chairman of the audit committee to report alleged fraud, but that imposed unnecessary burdens in todays digitally driven world. Employees could also communicate with members of the board via email, but the employee had to create email addresses at Web sites like Yahoo or Hotmail to remain truly anonymous. The system worked, but, as Johnson readily admits, it was not userfriendly for the user or the company. Enter SilentWhistle Corp. Overstock.com had not been actively shopping for a new whistleblower system at the time, says Johnson. But several executives at Overstock.com knew of a local company called SilentWhistle and agreed to a meeting. When SilentWhistle came and made a pitch to us, we saw that what they were offering was much better than what we had and would make things easier, Johnson says. It wasnt that we were actively looking, but rather someone found us and proposed something that made a lot of sense to us. Entirely Painless Integration Initially, Overstock.coms human resources department examined SilentWhistle as an alternative to a "suggestion box" or complaint system for personnel matters. HR executives then reported their findings to Johnson, who said, I thought it would be great for whistleblowing and SOX. Johnson and Overstock.coms chief financial officer tested SilentWhistle's offering several times, and shortly thereafter agreed to purchase the system. Johnson described the implementation as entirely painless. That's partially becauserather than integrate its software into customers IT departmentsSilentWhistle hosts its service on its own equipment.

Compliance Week February 22, 2005 Page 2

That way, employees at Overstock.com simply log onto a dedicated Web site hosted by SilentWhistle, which is rebranded to look exactly like Overstock.coms intranet. There, employees can submit a complaint via anonymous email. Theres no plugging into our systems other than getting our email addresses, Johnson says. To introduce the system, Overstocks president issued an email to all employees that essentially said, Were introducing this; we hope you use it, and we hope you let us know whats going on. We dont want it to be abused or to be a method for people to get back to their boss. We do want it to be used appropriately. Otherwise, Johnson said, SilentWhistle was so self-explanatory it required no substantial training for workers to use it. Johnson also mentioned how reasonable it cost them to implement SilentWhistle and that the annual subscription model is ideal. Current Usage Since implementing the basic version of SilentWhistle's offering, Overstock.com has since created 12 unique complaint categories for employees. Submissions are routed to various Overstock.com officers and directors depending on the nature of the gripe. For example, an allegation of financial fraud might go to the audit committee chairman or chief fiscal officer, while requests for more coat hangers in the closet go to the office manager. Johnson and a few other executives see all complaintseven if they dont answer the emails themselvesso they can monitor the volume of submissions and assure that every complaint is investigated. When it first went live, we had some people sending submissions that had no content, Johnson says. We think they were probably testing the system to see if it were truly anonymous. But we have not seen an increase in submissions at allwhich has been nice. I think weve provided a better method for people to

submit to us, and it hasnt been abused. Of the several dozen complaints received through SilentWhistle since it went live five months ago, Johnson says, roughly one-third were blank and another third were routine suggestions to improve company operations. Only a handful were allegations of wrongdoing that warranted investigation, and none resulted in any serious consequences. Lessons Learned One early mistake Overstock made, Johnson says, was to designate multiple executives as recipients for certain categories of complaints, without specifying who must take action. We found that wasnt the best idea because no single person owned the complaint, he says. Overstock subsequently pared back responsibility for most categories to a single executive, or clearly specified who among a group of recipients must track the complaint until its resolution. Johnson also advises other companies considering whistleblower software to spend extra time focusing on the tracking and resolution of complaints. Most vendors focus on ensuring the confidentiality of the sender; Section 301 of Sarbanes-Oxley requires that the audit committee establish procedures for handling the "confidential, anonymous submission by employees" of concerns regarding questionable financial matters. However, Johnson notes that assuring anonymity is the easy part. The hard part, he says, is responding, tracking, and monitoring ongoing complaints. For example, says Johnson, some complaints can be resolved immediately and answered with a quick note saying, Thanks, weve taken care of this today. Other complaints might need a week to investigate, and risk sliding off an executives radar screen. The SilentWhistle system is capable of reminding management that they need to resolve an issue within a designated period of time rather than following up some other way or sliding through the cracks.

2. Occupational Stress Claim Resolved for 150,000

31 January 2011 John Sturzaker, employment lawyer at RJW was handling a case for a prison officer, who was giving evidence in a whistleblowing case. Following the resolution of the whistleblowing case, our client was subjected to a great level of hostility from colleagues in the prison she worked in. Therefore she made the decision to move prisons. The harrassment did not stop there unfortunately meaning she was forced to complain to the governor, resulting in a 15 month investigation into the circumstances of her treatment. An employment tribunal found that our client had been unfairly treated and she was awarded a total of over 30,000. At this point the case was passed over to Simon Allen, joint Head of the personal injury team at RJW. A settlement offer of 92,000 which was made five weeks prior to the trial was rejected. A settlement meeting took place between the defendant's legal representatives and RJW's expert personal injury solicitors. Following this meeting an offer of 150,00 was made to settle the claim, which was accepted by our client.

3. Lakhyajit Deka : CBI whistle blower in trouble Subject: CBI whistle blower in trouble. I, Mr. Lakhyajit Deka, son of Late Bipul Ch. Deka, a citizen of India and a permanent resident of Village Kumarnichiga, P.O. Rajabheta, District Dibrugarh, P.S. Borboruah, Assam -786008 and presently residing in ######### Assam 781### beg to state the following few lines for your kind consideration. 1. Synopsis : That Sir, this is to draw your kind attention to the mass CORRUPTION AND FORGERY going on unabated in the INDIAN INSTITUTE OF ENTREPRENEURSHIP (IIE in short), Guwahati since long time under the patronage of a few higher officials of the Ministry of Micro, Small and Medium Enterprises (MSME), Government of India. In IIE, money figures in the vouchers are tempered with. For instance, Rs 9,234.00 has been changed to Rs. Rs 19,234.00 by inserting numerical figure of 1 in front of Rs 9,234.00. Further, Rs. 4,824.00 has been changed to Rs. 14,824.00, Rs. 24,849.00 to Rs. 34,849.00. It was noticed that the handwriting of the amounts written in words and numbers never matched nor did the spellings i.e. two is written as three. In this way figures of almost 9 out of 10 vouchers are changed. Along with figure manipulation and other ways of siphoning off public money as detailed in Internal Audit Report of Gobinda Sharma & Co.(C.A.), CBI report for 2007-08 and the AG Report for F.Y. 2005-06 & 2006-07, the investigating and audited reports point to crores of public money been leaked out of IIE every year since 2005 and earlier. This is only the tip of an iceberg. 2. Fact: That Sir, I was appointed in IIE as Accounts Officer on 20.12.2007. The mass corruption in IIE was brought into light by me in the first week of July 2008 when I came upon accounting entries without supporting papers. As a part of my duty, I immediately brought this matter to the notice of Director, IIE with documentary evidence. Consequent to this, I was suspended immediately and thereafter my service was terminated on 08.08.2008. The Honble Central Administrative Tribunal, Guwahati Bench was pleased to reinstate me. On 19.10.2009, the CBI had summoned me as a Prime Witness vide case no. RC 15(A)/2008-GWH against Shri K Ahmed, Director, IIE and others. Being aggrieved, the Director, IIE, Mr. K Ahmed lodged an FIR in Basistha Police Station (FIR 577/09 dated 01.12.2009, Guwahati) against me alleging that I have Terrorist Connection (with ULFA). Thereafter again my service was terminated for the second time on 16.12.2009. Sample copies of forgery done in vouchers submitted in IIE are attached as attachment 1. Copy of CBI summon letter is attached as attachment 2. Copy of the FIR 577/09 dated 01.12.2009 is attached as attachment 3. 3. Aftermath of detection of Fraud in IIE: That Sir, as the matter of forgery and corruption swells among the employees of IIE, the Director suspended me and on the same day i.e. on 14.07.08, an internal auditor (Govinda Sharma & Co, C.A. firm) was appointed. The Internal Auditor so appointed too reported huge forgery in the Accounts of the organisation in their internal audit

report dated 03.09.08. Copy of relevant portion of audit report of Govinda Sharma & Co, C.A. is attached as attachment 4. 4. Involvement of Officials of MSME, Ministry: That Sir, the matter of CORRUPTION AND FORGERY was informed to the stake holder of IIE, i.e. Ministry of MSME & North Eastern Council (NEC). At this, the Secretary, MSME instructed Mr. S. K. Goyal, Director, MSME to visit IIE and investigate the matter. Accordingly on 28.09.08, Mr. S. K. Goyal Director, MSME visited IIE and informed the employees of IIE that the internal Audit Report is the result of the inexperience of the auditor and that there were no financial irregularities but entry errors only which shall be rectified. Thereafter, he furnished a camouflaged Report in the form of a Tour Report to the Ministry of MSME of his visit to Guwahati from 28.09.08 to 01.10.08. Based on the Tour Report a general instruction dated 15.10.08 was issued to all organisations under administrative control of Ministry of MSME including IIE to cover up the mass corruption. A few days thereafter the CBI raid IIE and Mr. S. K. Goyal Director, MSME again visited IIE. This time while addressing the employees of the IIE cited the failure of CBI in handling the Arushi Murder Case and said that there is no point in cooperating with CBI as they can do nothing and went on to instruct the employees to cooperate with the Director, IIE. The CBI, ACB, Guwahati though had registered two cases, one of the case being against Mr. K Ahmed, Director, IIE & Mrs. Sriparna B Baruah Faculty Member, IIE for undertaking unauthorized foreign tour to Egypt and Israel at government expenses for which CBI had recommended disciplinary action against them almost a year back to the MSME Ministry, no action from the MSME Ministry has been visible till date. The other case is of financial irregularities in IIE, Guwahati against Shri K Ahmed, Director, IIE and others. Prosecution sanction was sought for by CBI from the MSME Ministry on 24.11.09. In the most expected line, the officials of the Ministry have kept the matter pending till date i.e. for more that six months. Further, Mr. Pravir Kumar, Jt. Secretary & CVO, Ministry of MSME, Govt. Of India, with reference to the above mentioned FIR dated 01.12.2009, wrote a letter to DGP, Assam vide D.O. no. 25(3)/2009-SSI(P)-II dated 11.01.2010, emphasizing upon my terrorist connection. He also went on to question the sanctioning of CBI prosecution. Copy of the Tour Report is attached as attachment 5. Copy of the general instruction dated 15.10.08 is attached as attachment 6. Copy of letter of Jt. Secretary & CVO, is attached as attachment 7. 5. The CBI, ACB, Guwahati: That Sir, the doubtful action of Mr. S. K. Goyal Director, MSME forced me to approach the Central Bureau of Investigation, Anti Corruption Branch, Guwahati (in short CBI, ACB). The satisfaction of preliminary information provided by me and the outcome of the preliminary investigation led to the registration of cases of corruption in IIE by the CBI, ACB, Guwahati. Accordingly, on 12th November 2008, the CBI, ACB, Guwahati, raided IIE. The CBI, ACB had registered two cases, one for undertaking unauthorized foreign tour at government expenses and the other for corruption in IIE. Disciplinary action had been recommended to the Ministry of MSME, New Delhi almost a year ago for unauthorized foreign tour. In the other case of financial irregularities in IIE, Guwahati against Shri K Ahmed,

Director, IIE and others, prosecution sanction was sought for by CBI from the MSME Ministry on 24.11.09. In its List as published in the CBI and CVC website as Cases Pending For Sanction Of Prosecution (Under Pc-Act, 1988) with Organisations / Departments, the cases registered against IIE for prosecution also feature (relevant portion of the List is enlisted as under). CRIME NUMBER DATE OF REGISTRATION DATE SENT FOR SANCTION NAME OF ACCUSED OFFICER DESIGNATION Organisation/Department(Sanction Pending With) R-015/2008 ACB, GUWAHATI 30-OCT-2008 24-NOV-2009 1. BOKUL SHARMA 2. K AHMED 3. M C SARMA 4. N C CHOUDHURY 5. PRASANTA GOSWAMI 6. S B BARUAH Administrative Officer Director Junior Accountant Accountant Assistant Faculty Member Faculty Member Jt. Secretary & CVO Of Micro, Small And Medium Enterprises, Govt. Of India 6. Office of the Principal Accountant General (Audit), Assam: That Sir, the Accountant General (Audit) was initially appointed on 06.11.2009 to audit the Accounts of IIE for the Financial Year 2006-07, but the huge volume of forgery in IIE unearthed during the audit, have warranted PAG (Audit) to re-audit the audited accounts for the FY 2005-06 as well. As I cooperated with the

auditors in carrying out the audit, the Director not only went on to file an FIR against me but also terminated me for the second time. The AG Audit Report for 2005- 2006 & 2006-2007 in clear and unambiguous terms prove the existence of forgery and corruption since 2005 and even before i.e., before my joining IIE in December, 2007. It is beyond doubt that I have been victimized for standing against corruption. Copy of relevant portion of AG audit report for 2005- 2006 & 2006-2007 is attached as attachment 8. I believe that my effort, although being a drop in the ocean of corruption by Big Fish paralyzing our Nation would not be a waste, as it would lead to intervention for removal of all possible hindrances affecting the course of law. I, therefore request you to consider the larger public interest and initiate necessary steps to enable due investigation and trial into the large scale financial irregularities committed in IIE to siphon off crores of public money. Thanking you and obliged, Enclosed: 8 attachments Yours faithfully, Lakhyajit Deka lakhyababa@gmail.com +919435720163