An effective whistleblower hotline program could make the difference between catching fraud early and facing a substantial loss.
Since the Sarbanes-Oxley Act was enacted in 2002, public companies have been required to provide an anonymous way for whistleblowers to submit information about questionable accounting practices. While private companies are not required to do the same, recent survey data from the Association of Certified Fraud Examiners (ACFE) and the Institute of Internal Auditors (IIA) shows that 75% of organizations have some form of whistleblower hotline program in place.
A whistleblower hotline program typically includes one or more mechanisms designed to encourage, collect, and manage tips from employees or outside parties regarding potential malpractice and unlawful or unethical behavior within the organization. The most common reporting mechanisms include a dedicated phone number or email address, web page, and direct contact with a specific individual tasked with handling whistleblower complaints. Many organizations use a combination of these mechanisms to ensure that the program is widely accessible to all employees.
Think Like Forensic Accountants
Per the ACFE, 42% of frauds are detected by tip. That’s nearly three times as common as the next detection method. In other words, an effective hotline program could be your organization’s most valuable resource in your fight against fraud.
How can you then ensure your program is as effective as possible? One tactic is to think of the design and management of your whistleblower hotline as a forensic accountant might. Forensic accountants specialize in detecting and investigating financial fraud and are often called upon to test the vulnerability of organizations to fraud and offer recommendations to minimize fraud risk.
With this in mind, we have compiled a series of tips on how to think like a forensic accountant as you manage your whistleblower hotline program.
1. Prioritize the confidentiality of your reporting system.
Forensic accountants know how important client confidentiality is in their investigations. After all, most clients are rightly concerned about the damage a potential fraud could do to their reputations. When a whistleblower suspects wrongdoing, they face similar reputational risks and also may be concerned about potential retaliation. A reporting mechanism that provides the ability to make anonymous reports can give whistleblowers more confidence that their tips will not be traced with malicious intent.
2. Encourage a whistleblowing culture.
As they conduct their investigations, forensic accountants learn firsthand the critical role internal reporting and awareness can play in detecting and preventing fraud. Fostering a culture of trust within your organization should be a key focus in the design and maintenance of your program. Consider implementing whistleblower protection mechanisms such as an anti-retaliation policy, a process for reporting and resolving retaliation, anti-retaliation training for owners and managers, and zero tolerance messaging from organizational leaders regarding retaliation.
3. Conduct thorough investigations.
A systematic and detailed approach is a hallmark of forensic accounting investigations. This includes working with the general information available and then focusing on the details specific to the situation. By reviewing submitted tips and delegating the investigation to a multidisciplinary team with the right subject matter expertise, you can more effectively resolve tips regardless of their credibility. As expressed in the ACFE’s Fraud Examiners Manual, “not all tips are valid, and while it is important to consider the motives of individuals willing to supply information of this kind, all tips must be approached as if they will provide useful information.” Ensure that all tips are evaluated for potential validity and documented appropriately. If a valid tip is identified, consider any potential legal obligations to investigate and report wrongful conduct to the appropriate authorities.
4. Develop measurables to evaluate a program’s effectiveness.
Forensic accountants use metrics and other measurables to identify patterns and anomalies within financial and nonfinancial data.
To evaluate the effectiveness of your organization’s whistleblower hotline program and more easily identify anomalies, select one or more metrics based on the reporting mechanism you implement. A few common examples include the number of complaints per period, the percentage of complaints substantiated or investigated, and complaints by claim types, reporting mechanism, or method. Use these measurables to ensure all tips are handled according to the policies of your program.
5. Use a multidisciplinary approach to manage tips and investigate complaints.
When faced with a complex investigation, experienced forensic accountants take a multidisciplinary approach. This means relying on colleagues across multiple practices to provide expertise on various aspects of the investigation. Organizations can take the same approach in managing their whistleblower processes. Where appropriate, incorporate multiple departments in managing tips and investigating them. Consider providing reporting mechanism access to individual staff members in human resources, compliance, or the audit committee. Delegating to those with subject matter expertise can spread the burden and maximize the efficiency and effectiveness of a whistleblower program.
6. Train and educate your staff.
As the digital landscape continues to evolve, fraudsters are constantly looking for new ways to conduct their schemes. This means forensic accountants must continually develop their abilities to recognize signs of fraudulent activity. Your organization should do the same. Require all employees to undergo whistleblower training, and teach them to spot and report indicators of inappropriate activity. Your whistleblower program’s effectiveness is sure to improve when your employees recognize that they are the front line of defense for your organization and trust that their tip will be taken seriously and with discretion.
Takeaway: Take Steps to Ensure Your Program Is Effective
While many organizations already have a whistleblower hotline program in place, consider whether your organization’s current reporting mechanisms and culture are effectively contributing to the complaint investigation and resolution process. By adding to or modifying your program with the suggestions above, you can improve the likelihood that fraud will be detected, investigated, and resolved in a timely manner.
Forensic Strategic Solutions has substantial experience working with employers to investigate and assess the vulnerability to fraud. To learn more about our work, contact us for a consultation, or visit our practice area page on Financial Fraud Investigations.