Fraud tip-line effectively helps prevent fraud
Tip-lines are one of the most effective tools organizations possess to detect and prevent fraud. In the most recent studies, companies with tip-lines experienced 59 percent smaller than the median loss for frauds then organizations without them. Despite their effectiveness, the same studies reported that approximately 15 percent of small businesses had tip-lines compared to 64 percent of larger organizations.
A good tip-line provides employees and others with an outlet to report unethical activity, defend against lawsuits, and emphasize fairness in an organization. Early reporting enables companies to take corrective action before a problem creates a serious threat.
The Association of Certified Fraud Examiners “2014 Report to the Nations on Occupational Fraud and Abuse” reported the most common detection source cited for frauds occurring at affected organizations is internal tips. Because tip-lines encourage and facilitate anonymous reporting, they are a proven fraud deterrent that can be successfully implemented without burdensome effort or expense.
An effective fraud tip-line should include the following features:
- Provide an anonymous and confidential whistle-blower reporting service for potential fraud, ethical issues, and other concerns. Anonymous and confidential reporting mechanisms help foster a culture whereby company employees are more likely to report or seek guidance regarding potential or actual wrongdoing.
- Reports may be submitted 24-hours a day by employees, volunteers, board members, and others within a registered organization.
- Allows users to have the ability to use a secure online form or a toll-free voicemail number to report wrong doing without the fear of retaliation. The fear of retribution is generally strong among potential whistleblowers and such fear may adversely affect the effectiveness of the internal reporting process. Trust in a company’s whistleblower process, including making hotline reports without fear of retaliation, is essential to motivate employees to report suspected unethical or unlawful conduct internally.
- Once a tip has been reported, all information is conveyed directly to those within the organization as designated by the organization’s management or the board of directors.
- Could offer financial as well as non-financial reporting incentives, such as cash rewards or extra vacation days, for whistleblower reports that lead the company to identify suspected unethical or unlawful activity.
Companies need to evaluate existing tip-lines to ensure they are operating as intended and are effective in preventing and identifying unethical or potentially unlawful activity, including corporate fraud, securities violations and employment discrimination or harassment. This evaluation should be a key element of every company’s assessment of its compliance and ethics program.
It is more crucial than ever for organizations to have effective whistleblower tip-lines as part of their corporate compliance programs so employees (and other company stakeholders, such as vendors) are motivated to report suspected unethical or unlawful conduct internally and not incentivized to first turn to regulators.
Reggie Novak is a Senior Manager in the Audit and Accounting Services Group. As a Certified Fraud Examiner, Mr. Novak can assist you with prevention services, including recommending internal controls and other measures to be implemented to prevent theft or misappropriation. If fraud is suspected, he can investigate and present his findings and recommendations. Contact Reggie Novak at 216.831.7171 or rnovak@cp-advisors.com for more information.
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