Of all the tools in the fraud prevention arsenal I would guess that fraud hotlines or fraud reporting channels are probably the most publicised and debated. There are many managers and executives who are disillusioned by the relevance of the information that has been obtained via fraud reporting channels.
There are many employees also, who are disillusioned at the lack of anonymity and the apparent ineffectiveness of the legislation related to reporting channels. With several high profile whistleblowers either being fired for disclosing confidential company information or being threatened with being fired, the lack of faith in fraud reporting channels is to be understood. However, if I may enter into the debate, the disillusionment with respect to the fraud hotlines is more a consequence of a failure to properly implement and maintain the facility than a failure on the part of the facility itself.
Just so that I have made my position clear, let me say it another way – I am firmly of the view that no organisation should be without a facility that allows for the anonymous reporting of fraud. Here are a couple of reasons why.
First and foremost, during every investigation that I have been involved in there has been at least one person interviewed who has indicated that he knew that “something was going on but did not know what to do about it. Next, respondents in the most recent Ernst & Young fraud survey indicated that a fraud reporting channel is second to internal controls when it comes to detecting fraud. And, if that does not do it for you, take note of the fact that the ACFE fraud survey established that the average loss, as a result of fraud, in organisations with fraud reporting channels was half that of organisations that did not have reporting channels.
So, what fundamental things need to be done to ensure an effective reporting channel?
- Sounds silly but: Make sure people know it is there.
- Make sure that persons reporting suspicions will remain anonymous AND, that they believe it.
- Make sure that staff know when, why and how to use the reporting channel.
- Always react to reports and let people know the outcome of the action taken.