According to the CDC, in 1965 more than 40% of the U.S. population smoked. After decades of persistent education, the general population has come to realize that best practices include healthy decisions; decisions that increase well-being and reduce expenses. Today, less than 20% of the population are smokers but the fact that it took 50 years to get here demonstrates that changing to best practices does not always come easily. In the world of business, organizations ranging from the American Institute of CPA’s (AICPA) to the Society of Human Resources Management (SHRM) have published pieces on the importance of hotlines. The Association of Certified Fraud Examiners (ACFE) has favored hotlines for many years, going so far as to say in their 2012 Report to the Nations that “Managers and owners….should focus their anti-fraud efforts on the most cost-effective control mechanisms, such as hotlines…”
The push for hotlines is understandable. They are inexpensive and require little time to implement. More importantly, they are effective and bring multiple benefits. Hotlines are a powerful tool for detecting problems before they grow. In its 2014 Report to the Nations, the ACFE said “Organizations with hotlines are much more likely to catch fraud by a tip, which data shows is the most effective way to detect fraud” and that “losses due to each fraud incident are reduced by an average of 41%, and are detected 50% more quickly when a hotline is in place.” Possibly even more powerful than detection is deterrence. At some point all of us have faced a little angel on one shoulder and a little devil on the other, and all of us have sent that little angel packing! A workplace hotline, and the messaging that goes with it, will cause employees to listen more closely to that angel, not only protecting your organization but also protecting that employee.
Furthermore, a hotline can act as a form of “insurance.” For example, and beyond fraud, consider this wording from the United States Equal Employment Opportunity Commission:
“The employer is automatically liable for harassment by a supervisor that results in a negative employment action such as termination, failure to promote or hire, and loss of wages. If the supervisor’s harassment results in a hostile work environment, the employer can avoid liability only if it can prove that: 1) it reasonably tried to prevent and promptly correct the harassing behavior; and 2) the employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer.”
A robust hotline offering can provide evidence relative to both 1 and 2 above. Additionally, malicious employee lawsuits (e.g. fictitious claims) may be discredited if an existing hotline was not used by the claimant.
With the positive tone that is established by a hotline, stressing ethical behavior and a safe work environment, employee retention improves. All of these benefits work together, protecting the reputation of the employer. Hotlines are so effective that according to the Society of Human Resource Management “it is generally recommended that all organizations implement some type of whistleblower system for reporting wrongdoing .”
As a result of persistent education regarding the benefits, forward-thinking organizations are increasingly implementing hotlines but, because this best practice is so new to most, few know how to successfully do so. The remainder of this chapter provides practical insights on doing so, including how to gain support from those who are resistant to change.
Characteristics and Functionality
The first step in establishing a hotline is to identify which features are important to your organization. As a practical reality, many organizations may not need advanced functionality. The primary benefits of detection, deterrence and “insurance,” can be met with even basic functionality. Larger organizations may benefit from case management functionality and other features, as discussed below.
One decision to be made is whether or not to operate an internal hotline or use a third party. An internal hotline may appear less expensive (“we just need a voice-mail box and an e-mail address”), but is likely to have a higher cost. A large majority of reporters choose to be anonymous for fear of being identified. As such, an internal hotline may not be trusted, resulting in delayed or even lost opportunities for identifying problems. Additionally, using internal employees to man calls, maintain software, create on-going communications and other critical steps comes at a cost of both time and money.
Whether internally operated or externally, numerous reporting mechanisms should be provided. Once a person is ready to report a concern, there should be no roadblocks to their success. Consider providing a website, toll-free number, e-mail address and a mailing address. While declining in popularity, even a fax number can be useful.
Live operators who can guide parties, parties who are often emotional, through a coherent and complete report, are also valuable. Recorded calls, including automated voice-mail boxes, may be available at a lower cost but may also discourage reporters who fear being recognized. Unguided questioning may also result in incomplete information. Multi-lingual capability may have value but organizations should keep in mind that English and Spanish cover the first or second language of nearly all U.S. residents. Ideally, operators will be available 24/7/365 as many reporters wait to file concerns until after they are away from work.
Web reporting can be a powerful tool. For many reporters, it is less intimidating as there is less fear of voices being recognized or calls being recorded. Additionally, some reporters feel less rushed and are better able to think through the details being provided. Such details tend to be stronger when guided questions are provided rather than a catch-all “tell us what happened” data box.
A feature receiving increased attention is what is generally known as “case management.” Case management is the software based ability to store reports, investigation notes and evidence. Other features may include the ability to sort, anonymous communications with reporters, segmentation of reports by facility and the ability to graph trends. Such functionality can be convenient at a minimum and, for organizations receiving a large volume of reports, can even identify opportunities for improved controls and better employee training. Case management may also provide a simple mechanism for reporters to provide new information or obtain updates from investigators.
Organizations may also want to consider the range of issues covered by a hotline. One covering both financial and human resources issues may be less confusing, and thus more effective, than two separate hotlines. The ability to disclose safety concerns may lead to lower workers’ compensation costs and fewer governmental fines.
Of course, none of the above matters if employees are not aware of the hotline or do not trust it (more on trust later). Live and pre-recorded training, along with informational pieces, create initial knowledge. On-going communications establish top of mind awareness. Wallet cards, posters and even desktop links to the hotline provide immediate availability. Remember, employees are not the only people who may be aware of problems. Clients and vendors may also become aware of unethical activity.
Effective implementation is important. According to Lee Beall, CEO of Ohio based Rea & Associates, CPA’s, the addition of client hotlines has resulted in almost immediate results for his clients including detection of perceived religious discrimination, email security issues, redirection of vendor rebates and improper use of customer discounts. In every case the client was immediately notified, resulting in corrective action.
Of course, all the planning in the world will not matter if the hotline does not gain acceptance; acceptance among both a management team that may be reluctant to change processes and an employee group that is skeptical of management.
Because of the educational hurdles alluded to previously, fellow management may prove to be the proactive manager’s largest hurdle. Here is a summary of the facts that management must understand:
- Detection – a hotline will catch problems ranging from theft, to safety violations, to HR violations. Unlike expensive insurances that may never be used, the savings from catching one problem may offset the cost of a hotline for decades.
- Deterrence – A clearly communicated program prevents problems from occurring. A bank guard is being effective even when the bank is not being robbed.
- Insurance – A hotline can help to avoid costly governmental fines and to discredit fictitious and/or malicious employee lawsuits.
- Protection – Employees are a key asset. A hotline demonstrates that their best interests are important to management.
- Reputation – It takes just one bad apple to spoil the bunch. The short-term actions of a few can destroy the life-time efforts of the many. In the world of accounting, one needs to look no further than the Enron case.
- Ease and fees – for most organizations, implementing a hotline only takes a few hours and incurs only a nominal cost.
A common objection from management is the fear that the hotline will be abused. The practical reality is that hotlines are rarely abused. In fact, we have almost no experience hearing from management that filed reports were false. Remember, if an employee wants to make a co-worker’s life miserable that can be accomplished with a good old fashioned anonymous letter. What is more important is that “implementing a hotline sends a clear message to the organization that acting in an ethical manner counts,” says Randal Simonetti, Reputation and Crisis Management Expert with Rochester, NY based EFP Rotenberg, CPA’s. It is not uncommon that once management understands the importance of a hotline, they are wondering why more reports are not filed!
Steps must also be taken to gain employee buy-in and trust. First, assure employees that reports will remain anonymous. Do not records calls and make sure employees know that you do not. Do the same regarding the tracking of IP addresses. If employees were comfortable speaking up, most would do so. Anonymity is a key feature that makes hotlines effective.
Next, ensure that an executive level member of management is the person revealing the program to the employee base. The importance of the program is accentuated when this is done. Delivering the message from a lower level, no matter how competent the messenger, discredits the hotline’s importance. Managers and supervisors should then reinforce the message, allowing them buy-in to the program. The tone at the top should be reinforced by the mood at the middle, positively impacting the buzz at the bottom!
Remember, the tone that is established should be positive. Generally speaking, organizations have one opportunity to make it known that the purpose of the hotline is to prevent “one bad apple from spoiling the bunch” and not to empower “Big Brother.” The purpose of a hotline is to protect the organization and its employees. Therefore, organizations should not be shy about presenting the hotline as the benefit that it is. It is also important to let employees know that management considers any named suspects to be innocent unless proven otherwise. This will help to reduce angst amongst the select few who have a guilty conscience.
Organizations can also reduce angst by reminding employees that management is approachable. A hotline should never be used as a replacement for an “open door” policy. Simply letting employees know that management’s preferred way to learn about concerns is through direct communications signals that the hotline is not the first step in a sweeping cultural change but rather is a strengthening of the existing environment. Additionally, let employees know who within management gets notified when reports are filed. This improves clarity about the procedures followed and further removes any sense of “mystery.” Finally, the Company should establish an anti-retribution policy specifically stating that individuals filing reports in good faith, whether the reports turn out to be accurate or not, will be protected from any retribution. This last point is important for both the reporter and the accused to understand, particularly if the accused is a superior to the reporter.
Sharing success stories further establishes trust, particularly where employees and their jobs were protected. Key information about the purpose of the report, the findings of the investigation and the resulting changes drives support. When employees see positive change, organizations see positive participation. Communication is key and the hotline should also be kept top of mind through features such as training, posters, wallet cards, newsletters and the like. Even when newsletters are not actually read, they provide a tangible reminder that the hotline is in place.
Nick Lynch, CPA/CFF, CFE, Director of Forensic Accounting and Litigation Support at Kentucky based CPA firm Dean Dorton Allen Ford, PLLC sums it up this way, “Transparency and the support of upper management are critical to the success of an ethics hotline. It is imperative that employees have a positive perception of the program and understand that it is also for their protection.”
Once a hotline source has been identified, several internal guidelines must be determined. The first question to ask is “who should be notified when a report comes in?” Part of that answer should always be “at least two people.” Notifying two people serves two purposes. First, it is always possible that one of the people being notified is unknowingly part of the problem. For example, if a report is filed regarding a plant controller who set up a fictitious vendor, and the CFO is notified about that report, the organization is not likely to detect the problem any time soon if the CFO is colluding with the controller. If the report also goes to another “C-level” employee, an audit committee and/or a Board member, the problem will have to be addressed.
Furthermore, organizations will be served well by specifically identifying channels of communications to be followed when reports are filed. Specific consideration should be given to when and if to involve:
- Human Resources
- Finance & Accounting
- Internal Audit
- External Auditors
- Audit Committee
- Board of Trustee
- Information Technology
A word of caution – do not over-complicate matters!
With just a minimal amount of planning a hotline can be effectively implemented, increasing organizational well-being while reducing expenses and distractions. In a world where so many things are complicated, time consuming and expensive, a hotline is a refreshingly powerful, simple and affordable tool.