Two years ago, this blog reported on a study by a University of Chicago researcher that finds employee whistleblowers detect more corporate fraud than any source of detection. Now Dallas News columnist Will Deener has reviewed the same research by Adair Morse. The study is about to be published in The Journal of Finance. Of the pool of 216 cases of corporate fraud from 1999 to 2004, whistleblowers detected the fraud in 17% of the cases — more than any other group. Short sellers came in second, uncovering the fraud in 14.5% of the cases. Analysts were third, with 13.8%. The Securities and Exchange Commission (FCA) detected only 6.6%.

Morse also finds that the qui tam reward for whistleblowers in the False Claims Act (FCA) is a powerful inducement to encourage employees to detect and report fraud.  In the health care industry, where most FCA qui tam cases arise, the rate of whistleblower detection jumps to 41% — a testament to the value of rewarding whistleblowers.

The finding about the role of whistleblowers as fraud detectors matches what the PriceWaterhouseCoopers Global Economic Crime Survey and the Transparency International 2009 Global Corruption Report: Corruption and the Private Sector (GCR) found. Whistleblowers, not government agencies, are the best detectors of fraud.