You might expect someone like Sherron Watkins, the famous Enron whistle-blower, to be an outspoken supporter of the proposed whistle-blower-friendly rules mandated by the Dodd-Frank Act.

You would be wrong. The ex-Enron accountant predicts that the forthcoming final rules fleshing out Congress’s intentions for the 2010 law will have no effect on whistle-blowing unless they are significantly different from the preliminary rules proposed last November. And she opines that the culture of the Securities and Exchange Commission, which will issue and enforce the rules, “is not one that will make this provision effective one iota.”

Speaking recently at a meeting of the New York State Society of CPAs, Watkins accused the SEC of putting a priority on handling the “easy” cases whistle-blowers bring in so as to enhance its case-disposal rate. She also criticized the commission for, she suggested, lazily assuming that companies are “doing it right” and for not having the “bad-cop attitude” of the Justice Department. (SEC spokesman John Nestor declined to respond to those statements when contacted by CFO.)

Regardless of whether such opinions are typical of those held by other whistle-blowers, clear-cut battle lines are being drawn over the question of whether the proposed rules are what’s needed to rein in corporate fraud at publicly traded companies.

Under the proposal, whistle-blowers who voluntarily provide original information leading to the recovery of more than $1 million from accused companies would be eligible to receive 10% to 30% of the amount.

For the first time, those reporting alleged violations of any securities laws would be eligible for an award. An SEC program in effect since 1989 has provided cash awards to those who expose insider trading, but only a handful of awards have been made. In fact, until a $1 million payout in July 2010, a total of only $159,000 had been paid out over 21 years.

But insider trading is difficult for co-workers to detect, since they don’t have access to the offender’s brokerage accounts. Perhaps offering better testimony to the effectiveness of cash awards for whistle-blowers is the False Claims Act, which enables private individuals to sue government contractors they believe are cheating the government and collect 15% to 25% of recovered funds. Whistle-blowers would not have the right to such a “private cause of action” under Dodd-Frank. Still, the fact that some $28 billion has been recovered for the government through the False Claims Act since 1986, when the Lincoln-era law was first amended, is proof enough for some that the proposed payouts will work.

“The evidence is clear that providing a financial incentive for people to report corporate fraud has worked very well,” says Jason Zuckerman, a principal of The Employment Law Group, which represents whistle-blowers. At the same time, there is plenty of concern that the enticement of riches will lead to a flood of tips that the SEC — which even before Dodd-Frank was signed into law last July was inundated with whistle-blower tips — will not be able to handle. “My fear is that these rules are going to spur many specious claims,” said former SEC commissioner Paul Atkins during the same program where Watkins spoke. “The SEC has been trying for years to deal with all the tips it gets, and it is also a real [corporate] management headache dealing with them.”

But, says Zuckerman, if you were to talk to people who lost their life savings to corporate fraud, “you would find it hard to argue that, if the SEC has to take some time to separate the wheat from the chaff, then this program is not worthwhile.”

The SEC’s Nestor, while declining to comment directly on statements made about the commission, says a new program has been put in place to triage cases, which have increased “significantly” since the enactment of Dodd-Frank. (For claims submitted now, any awards earned will be paid after the final rules are issued.)

To those opposed to the proposed rules, an even bigger issue than a potential flood of tips is the provision that whistle-blowers may report fraud allegations directly to the SEC. To be eligible for protection under the antiretaliatory provisions in the Sarbanes-Oxley Act, they have had to first inform their employer through internal compliance programs.

The concern is that the option to go straight to the SEC could undermine the effectiveness of existing compliance and internal-audit processes. “It will harm companies,” says Rick Firestone, a partner at McDermott Will & Emery and a former associate director of the SEC’s enforcement division. “It’s ironic that the Dodd-Frank whistle-blower program sets up strong incentives to bypass the very internal reporting that the Sarbanes-Oxley program was set up to promote and protect.”

There also is the possibility that the opportunity for an employee to earn a big monetary award could exacerbate the effects of fraud in some cases. For example, someone might wait for a period of time before reporting a fraud in order to influence a larger recovery by the SEC.

Firestone, who defends corporate clients against whistle-blower claims, notes that most companies are grateful to receive information on possible fraud and take decisive action to root it out. That may be true, but it does not take into account that some violations are part of company culture and orchestrated at the top. If a CEO is behind an illegal scheme to stimulate short-term profits, the company’s compliance program is unlikely to be effective, Zuckerman points out, and an internal “investigation” could include tampering with evidence or witnesses.

For her part, Watkins said at the NYSSCPA meeting that a better strategy than paying whistle-blowers would be to incentivize corporate risk managers and internal auditors —who are not eligible for whistle-blowing awards under Dodd-Frank — by giving them stronger voices and meaningful guarantees that they will be listened to. She added that much fraud would be eliminated if companies were required to pay CEOs all in cash, so they would not be tempted to “cook the books” in order to win potentially lucrative stock options.

And despite the lure of a huge payday, it will continue to be the case, Watkins suggested, that many who could blow whistles will keep quiet for fear of losing their jobs or wrecking their companies. Further, they fear being stamped with a “troublemaker” label that will make finding a new corporate job extremely difficult, as most whistle-blowers have found out.

On that point, Zuckerman agrees with Watkins. “She has a good point,” he says. “High-level corporate people who are aware of fraud would probably earn more over their careers if they kept their jobs rather than blowing the whistle.”