Somewhere in the United States is a bank account with $452 million sitting there, waiting to be paid out to anyone who helps the Securities and Exchange Commission identify and pursue cases of corporate fraud.

Well, anyone who meets the right criteria, that is.

The fund was created by the Dodd–Frank Act and is earmarked for payouts to whistleblowers.  Although not a single award has been paid out yet, that is about to change, as the SEC's new Office of the Whistleblower continues to expand its operations and readies the first wave of whistleblower payments. As the office concludes its first year of operation, answers to questions about the SEC's whistleblower program are beginning to emerge, such as the quality and volume of tips generated and the effect they are having on corporate compliance.

Sean McKessy joined the SEC as its first chief of the Office of the Whistleblower in February 2011. In the year that's passed, the SEC has taken several steps to take this office from a mere concept to a fully functioning operation, including:

Adopting final rules to govern the operations and procedures of the whistleblower program, which took effect on Aug. 12, 2011;

Hiring Jane Norberg as deputy chief;

Staffing the office with five lawyers and a paralegal on detail from other parts of the agency; and

Launching an Office of the Whistleblower Website with detailed information about the program and links to the SEC's Tips, Complaints, and Referrals Portal for submitting a whistleblower tip online.

Although little public data is available yet on the tips whistleblowers are submitting, early indicators suggest a steady flow of high-quality information is making its way to the regulator. In the SEC's annual report on the Whistleblower Program, issued last November, the agency disclosed that in the seven weeks from the day the Whistleblower Office effectively opened its doors (Aug. 12) until the end of that fiscal year (Sept. 30), the SEC received 334 whistleblower complaints—an average of about seven per day. The most common complaints were about market manipulation (16.2 percent), corporate disclosures and financial statements (15.3 percent), and offering fraud (15.6 percent). In that short time, the SEC received tips from individuals in 37 states and many foreign countries, including 10 tips from China, 9 from the United Kingdom, and 3 from Australia.

Apparently, activity hasn't dropped off since then. At the annual SEC Speaks conference in February 2012, SEC Chairman Mary Shapiro stated that the whistleblower program had provided the agency with “hundreds of higher-quality tips, helping us to avoid investigatory dead-ends and, at the same time, prodding companies to enhance their internal compliance programs.”

The biggest question for compliance officers, of course, is whether that potential of monetary rewards will tempt employees to ignore the company's internal complaint hotline in favor of blabbing to the SEC.

Last month McKessy offered a similar assessment when he said the agency was “very encouraged with the percentage of high-quality information that comes in through the portal.” He stated that the SEC was seeing some “very specific, timely, and credible tips coming through people who are participating in the program.” Some whistleblowers have even submitted audio recordings of conversations, McKessy added.

The biggest question for compliance officers, of course, is whether that potential of monetary rewards will tempt employees to ignore the company's internal complaint hotline in favor of blabbing to the SEC. Indeed, when the SEC was writing the rules for its whistleblower program, many public companies and business groups such as the Association of Corporate Counsel and the U.S. Chamber of Commerce lobbied hard for a requirement that employees must first report potential violations of the securities laws internally before blowing the whistle to the SEC. The SEC considered these views, but ultimately rejected any such requirement, deciding to encourage—but not require—initial internal reporting in other ways. Among them:

A 120-day “grace period” where an employee who reports information internally to his or her company may wait before reporting the same information to the SEC. If the whistleblower reports the information to the SEC within this 120-day period, the SEC will hold the whistleblower's “place in line” by considering the tip to have been provided to the SEC on the date of the original internal report; and

A rule stating that when determining the percentage of a whistleblower's award (which can range from 10 to 30 percent of any total settlement), the award may be revised upward if the whistleblower first reports possible misconduct internally.

Unimpressed by these incentives, the U.S. Chamber of Commerce denounced the SEC's final rule, predicting that that the lack of a “report internally first” requirement would inevitably lead employees to take complaints to the government. The Chamber of Commerce warned that the rule would undermine companies' internal compliance systems and “put trial lawyer profits ahead of effective compliance and corporate governance.” The Chamber argued that the rule will only make detecting fraud that much harder and more expensive.

The SEC's final rule also prompted U.S. Rep. Michael G. Grimm (R-N.Y.) to introduce the “Whistleblower Improvement Act of 2011,” which would “require a whistleblower employee, as a prerequisite to eligibility for a whistleblower award, to: (1) first report information relating to misconduct to his or her employer before reporting it to the SEC, and (2) report such information to the SEC within 180 days after reporting it to the employer.” The Chamber of Commerce anticipates that the Whistleblower Improvement Act will receive further legislative consideration this year.

Despite all those fears, however, employees don't actually seem to be bypassing the internal hotline. In fact, McKessy says, most tips to the SEC have already been reported. “I'd be hard pressed to think of one [complaint] where it was a true insider tip that was not reported to anyone else,” he said recently.

On another occasion in March, McKessy added that while he doesn't yet have hard data to prove it, anecdotal evidence suggests that the whistleblower program is not “destroying internal compliance programs or pushing people to subvert their internal compliance programs.” He added that a significant majority of individuals who have approached the SEC with complaints about their company say that they also “reported internally before they came to us. They reported to their boss, they went to the audit committee in some instances, they called their anonymous hotlines.”

McKessy's observations are buoyed by a report released in April showing that for the third consecutive quarter, fraud reporting within companies has reached an all-time high. The fourth-quarter 2011 findings of the Quarterly Corporate Fraud Index by The Network and BDO Consulting, which are based on compliance reporting activity from more than 1,400 organizations worldwide, show fraud now accounts for 21.6 percent of all reporting activity, an increase of 2 percentage points compared to the same quarter of 2010. In addition, the report found that the total number of reported fraud-related incidents also rose 15.2 percent during that time.

Luis Ramos, CEO of The Network, suggested that “the upward trend in fraud reporting may actually indicate that organizations are working harder than ever to fight the risks posed by fraud.” He said companies are doing more to promote a workplace where employees are willing to report fraud internally. In time—perhaps as part of its next annual report on the whistleblower program, which should be released in November—the SEC will have a more robust set of data to assess the effect of its whistleblower rules on internal corporate compliance programs.

For now, at least, it looks as if fraud tips are coming in strong to both the SEC and to corporate compliance departments.