One of the most effective and inexpensive methods of monitoring the pulse of a business is to create a confidential whistleblower hotline. According to the 2008 Association of Certified Fraud Examiners Report to the Nation on Occupational Fraud & Abuse, tips have historically been the most common means of fraud detection. Approximately 46% of occupational fraud cases in the 2008 ACFE survey were initially detected by tips—an increase of 12 percentage points over the 2006 figure.
If your company or client lacks a whistleblower system, follow these steps to build one:
R Evaluate what level of service your company or client needs. A variety of vendors provide customized hotline advisory, administration and reporting services. Some services with the cheapest fees may be limited to a system with only the capability to collect voice mail messages detailing the hotline complaint. While this type of system can offer savings (costs may range from 25 cents to 75 cents per employee annually) the chief disadvantage is the lack of follow-up in the event the caller needs to be reached and fails to provide contact information.
R Once the hotline is established, offer periodic employee training and education about its existence and how it functions. Some tried and true methods for publicizing a hotline include annual messages from the CEO or other senior executive emphasizing the company’s support for the program; periodic printed messages on pay statements advising employees of the hotline; and a well-defined and highly publicized corporate policy that emphasizes nonretaliation to users of the reporting process. It is essential to emphasize that a caller’s identity will remain anonymous.
R Make vendors aware of the hotline process. Publicize the hotline on vendor invoices, personal correspondence, company letterhead and other literature. Increased vendor awareness may elicit allegations of bribes, kickbacks and theft of intellectual property.
R Establish a protocol for prioritizing and classifying the nature of the allegation or complaint. That will include a corporate policy for who is notified and when immediately following a hotline call. In some cases, especially those that may result in immediate harm to the safety or health of an employee, a client, customer or member of the public, immediate notification is required. Additionally, allegations of employee discrimination that may be in violation of the law must be aggressively investigated and resolved to mitigate potential corporate legal exposure.
R Designate an independent point of contact to review, investigate and report allegations received through the hotline. Depending on the size and nature of the business, that contact may be an ethics or compliance officer, a head of security or a director of investigative services. Regardless of the title, the key factor is that the designee has access to the CEO or executive-level committees and isn’t encumbered by layers of management that might block the flow of information.
R Periodically report hotline results of a significant nature directly to audit committees, directors and internal and external auditors. These issues should include allegations of fraud, embezzlement, accounting irregularities, management misconduct, employee discrimination, violations of the company’s code of conduct and other violations of law.
R Be prepared to demonstrate that the company vigorously supports its hotline program. This may ultimately include disclosure to the government and shareholders; cooperation with law enforcement officials and prosecutors; appropriate administrative actions related to employees and executives found to be in violation of law and/or corporate policies; and publicizing final results of investigations identified and developed through the hotline process.
—By Frederick J. Cantz Jr., CPA, CFE, senior manager, internal audit, for the University of Medicine and Dentistry of New Jersey in Newark, N.J. His e-mail address is fred.cantz@umdnj.edu.
For recommendations from the A ICPA Antifraud Programs and Controls Task Force on measuring the effectiveness of an anonymous hotline program and guidance on evaluating tips received via a hotline, click here. See a sample tracking report here. Additional antifraud resources are available at the AICPA’s Forensic and Valuation Services (FVS) Center at www.aicpa.org/FVS.
