Tips account for 40 percent of occupational fraud detection, according to the 2018 “Report to the Nations” prepared by the Association of Certified Fraud Examiners.
Of that 40 percent, 53 percent of the tips were provided by employees of the victimized organizations.
Unfortunately, those with knowledge of criminal or unethical behavior often fear being identified or retaliated against, so a reporting program with anonymity is paramount. Tipsters also need to know that reports of suspicious activity will be promptly and thoroughly evaluated.
Small companies have fewer employees in place to act as checks, so the risk of misappropriation of assets escalates.
Often, employers have a level of trust in their employees because of length of service and familiarity – so what happens when one employee suspects or knows that another employee is stealing?
Where do they turn? Whom do they tell?
People are resistant to being labeled as the one who went to the boss.
This is where an outside source for anonymously reporting wrongdoing is a priority.
The Report to the Nations states “telephone hotlines are most popular, but whistle-blowers use other various reporting mechanisms as well, including email, web-based/online forms, mailed letters and faxes.”
Small organizations do not have abundant resources to invest in anti-fraud programs, but there are ways to build an efficient whistle-blower program. Here are a few tips to keep in mind:
< COSTS – Compare the costs of using a vendor with the cost of operating a hotline in-house. Since vendors specialize in this field, it may be beneficial to go with a vendor. Be sure to get a contract with specific terms, and make sure the vendor has liability insurance.
< INDUSTRY FOCUS – Ask potential vendors what types of clients they serve. Select a vendor that best fits your business.
< SERVICE TYPES – Hotlines that allow a caller to speak with a live person should be available, as well as computer-based systems. The hotline number should be your own. Do not use a vendor-owned number, because if you change vendors, you will have to change everything where you posted the hotline number.
< TRAINING – Institute employee training that highlights the reports that management will receive. This has the added benefit of serving as a deterrent to someone who may be thinking he could get away with stealing.
< ADVERTISE – Publicize the hotline number on vendor invoices, personal correspondence, company letterhead and other literature. Whistle-blowing by customers and vendors is increasing, so it is beneficial to broadly post this resource.
< INDEPENDENT POINT OF CONTACT – Someone should be charged with monitoring the hotline. In large organizations, this could be an ethics officer or head of security. In small organizations, it may be the owner. Periodically share the results of the hotline with employees. If an infringement resulted in criminal proceedings, it is especially important to share this information.
SET AN EXAMPLE, TRAIN
Whistle-blower programs are not a tool exclusive to large organizations. Small and mid-sized companies, too, are victims of loss through theft, accounting irregularities, misconduct and violations of law.
Employees look to the officers and owners of an organization for a code of conduct that is above board and ethical.
So, first, train employees on ethical behavior from the start, and regularly reinforce the message at meetings.
Then, offer a safe recourse for reporting unethical behavior.
Hotlines are a way to provide 24/7 access, with a range of service levels, dependent on your needs and what you can afford.
But one thing is for sure – you cannot afford to not have a whistle-blower hotline.
Rosemary Lamaestra, Certified Public Accountant and Certified Fraud Examiner, is a manager with Regan, Levin, Bloss, Brown & Savchak PC (RLB Accountants and Consultants) in Allentown and a member of the Pennsylvania Institute of Certified Public Accountants. She can be reached at firstname.lastname@example.org.