In their haste to pass Sarbanes-Oxley into law following the spate of scandals headed up by Enron, politicians and regulators neglected to look carefully at the issue of whistleblowers. Who actually blows the whistle? What drives them to do it?

Important questions because the answers tell us whether the reforms targeted the right people and whether fraud detection is being done cost effectively.

Some interesting insights from Chicago Graduate School of Business professors Adair Morse and Luigi Zingales and Alexander Dyck from the University of Toronto's Rotman School of Management. Their study sheds light on these questions.

Their paper Who Blows The Whistle on Corporate Fraud found that the discovery of fraud comes from many sources. And stock exchange regulators, commercial banks and underwriters are not there at all. Somehow, they don't even notice the fraud. Short sellers and equity holders account for 9 per cent of detected fraud and auditors 14 per cent.

The most surprising finding is that the Securities and Exchange Commission and litigation don't really play that important a role in bringing fraud to light. The SEC only accounts for 6 per cent of fraud detection and private security litigation accounts for only 2 per cent.

The researchers also found that financial analysts and short sellers are the quickest to uncover fraud. They take only 9.1 months on average to detect it, as opposed to clients, competitors and auditors who take 13.3 months. The media takes nearly two years (21 months), just a tad faster than the SEC (21.2 months).

The study also found that analysts, journalists, auditing firms and employees who uncover fraud do not, as a rule, benefit from the disclosure, either from a career or financial viewpoint. Indeed, in 82 per cent of cases, employee whistleblowers ended up either being fired, shifted or pressured to leave. Audit firms were more likely to lose the client when they revealed fraud.