This article was printed in InsideCounsel magazine on January 29, 2016.
In 1991 I began my career at a satellite office of an international accounting firm. We had forty-five hard-working, well educated employees and three computers. Routinely, our efficiency was stifled as we awaited an available work-station in the “computer room.” Three months into my career, I was stopped in the hallway by our managing partner. He was as intelligent and as intimidating as his title would imply. “You have been here three months now,” he stated firmly, “what can we be doing better?” Naively, I thought he really wanted my opinion. “Well,” I said hesitantly, “I think we could use a few more computers.” He paused, furled his eyebrows, confidently stated “I’m not convinced that computers are the way to go” and continued on his way. I learned two lessons from that day: 1) change does not come easily, and 2) best practices are not always immediately recognized. Today, outside of publicly-traded companies, few entities have implemented employee hotlines yet 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, boldly stating 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…” Furthermore, in October 2014 the Harvard Law School Forum on Corporate Governance and Financial Regulation wrote “It is more crucial than ever that companies have effective whistleblower hotlines as part of their corporate compliance programs…”
Although slow, the movement towards hotlines is logical. They are inexpensive and are quickly implemented. More importantly, hotlines work and deliver multiple benefits including finding small problems before they cause significant damages. The ACFE wrote in its 2014 Report to the Nations, “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 “losses due to each fraud incident are reduced by an average of forty-one percent, and are detected fifty percent more quickly when a hotline is in place.” Of course, detection is appealing but the value of deterrence should not be ignored. Faced with appropriate levels of pressure, opportunity, and rationalization, we are all capable of making poor decisions. The establishment of a hotline, and the positive on-going messaging that comes with it, encourages smart choices; choices that protect the individual and the organization.
A hotline may also provide a form of “insurance.” Consider this quote from the EEOC:
“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.”
The existence of a hotline may provide proof of both 1) and 2) above. Additionally, malicious lawsuits may be more easily discredited if an available hotline was not used to report an alleged concern.
As safe and ethical behavior increases through the use of a hotline, so does employee satisfaction. Of course, all of these benefits work together to enhance an employer’s reputation. In fact, because hotlines are so effective, the Society of Human Resource Management has written “it is generally recommended that all organizations implement some type of whistleblower system for reporting wrongdoing.”
Because of the benefits, forward-thinking managers are implementing hotlines. Yet, since this best-practice is so unknown to most managers, effective implantation is just as unknown. The following gives practical advice on hotline implementation, including gaining support from those hesitant to make changes.
Characteristics and Functionality
Key to effective implementation is identifying features important to your organization. Realistically, many organizations do not need many of the advanced features emphasized by service providers. The most significant benefits of detection, deterrence and “insurance,” can often be acquired with basic functionality. Larger entities, however, may benefit from additional features including case management.
The first question to answer is whether to use an internal hotline or an independent hotline. On the surface, internal hotlines may seem less expensive (voice-mail box, e-mail address) but the truth often reflects otherwise. Most reporters choose anonymity. Thus, an internal hotline may not be trusted, eliminating opportunities for controlling costs. Furthermore, using internal resources to maintain software, man calls, establish appropriate messaging, and other important steps does not come cheaply.
Under either scenario, multiple reporting channels should be provided. When someone is prepared to speak-up, there should be no obstacles to his or her success. Consider providing a website, toll-free number, fax number, e-mail address, and a mailing address.
Because reporters are often emotional, reports tend to be more comprehensive and understandable when live operators gather the details. Unguided questioning via a voice-mail box or open-ended “tell us what happened” web form also result in incomplete, if not incoherent, information. English and Spanish cover the first or second language of nearly all U.S. residents, but some organizations will also need additional languages. Finally, many reports are filed after work hours so 24/7/365 availability is often critical.
Web reporting can uncover very valuable information. Many reporters find web-reporting less intimidating and feel less rushed. Accordingly, web-reporters are better able to articulate important details. Again, important details are more likely to be captured when structured questions are presented as opposed to a catch-all “tell us what happened” data box.
Many hotline providers tout “case management” as a critical tool. This term refers to the software’s ability to store evidence, investigation notes and reports. As previously noted, while nice, this feature is of less significance to smaller organizations (i.e., those with fewer reports). Functionality desirable to larger organizations may include the ability to sort reports, have anonymous communications with reporters, segment reports by facility, and the ability to graph trends. Furthermore, a mechanism allowing reporters to obtain updates and provide new information may be critical for gaining credibility among employees.
Consideration should also be given to the types of issues addressed by the hotline. A single hotline covering both financial and human resources (HR) issues may be less confusing, and thus more effective, than two separate hotlines. The ability to report safety concerns may lead to fewer injuries, lower workers’ compensation costs and fewer governmental fines.
With all that said, none of the above matters if the hotline is not known or trusted (more on trust later). Training, educational pieces such as wallet cards, posters, and newsletter articles create initial knowledge. Recurring communications maintain top-of-mind awareness. Desktop links to the hotline provide a constant reminder. Cost saving opportunities may also be discovered via disclosure to vendors and clients.
While an investment in planning is necessary, hotline implementation can lead to impressive results. 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, e-mail security issues, redirection of vendor rebates, and improper use of customer discounts. In every case, the client was immediately notified, resulting in corrective action.
Without question, great planning is nearly meaningless if the hotline does not gain acceptance. Acceptance must start with management, even those resistant to change, and continue to employees, even those skeptical of management.
The proactive manager’s biggest challenge? From our experience, it is less-proactive fellow management. To overcome this obstacle, here is a list of facts for the benefit of fellow management:
- Detection – a hotline will catch problems ranging from theft, to safety violations, to HR violations. Finding one issue can offset the cost of a hotline for decades.
- Deterrence – A strong tone at the top, and access to management, prevents problems from occurring. A bank guard is being effective even when the bank is not being robbed.
- Insurance – A hotline can provide an “affirmative defense,” helping to avoid governmental fines and/or discredit fictitious and malicious lawsuits.
- Protection – from losing employees. A hotline demonstrates employees’ best interests are important to management, stopping problems that can lead to the departure of skilled talent.
- Reputation – The selfish actions of just one person can destroy the life-time efforts of an organization.
- Ease – Implementing a hotline typically only takes a few hours.
- Fees – Most organizations incur only a nominal cost.
A concern frequently raised by managers is the fear that the hotline will be abused. In reality, this rarely happens. For example, my company has almost no experience hearing from management that filed reports were not true. Keep this perspective: before the telephone and the internet, ill-intentioned employees could make a co-worker’s life difficult with a simple written letter. According to Randal Simonetti, Reputation and Crisis Management Expert with Rochester, NY based EFP Rotenberg, CPA’s, the important thing is that, “implementing a hotline sends a clear message to the organization that acting in an ethical manner counts.”
Once implementing a hotline, take steps to gain employee support and trust. Assure employees that reports will remain anonymous and, if true, make it clear that the hotline does not record calls or track IP addresses. This is important. Employees comfortable speaking up will do so; anonymity appeals to nervous reporters.
Launch the program via a senior member of management. This will clearly emphasize the importance of the program. Delivering the launch message via a mid to low level employee discredits the hotline’s importance, in spite of that employee’s competence. Managers and supervisors should, however, reinforce the message. The tone at the top should be reinforced by the mood at the middle, positively impacting the buzz at the bottom!
Organizations have one chance to set a positive tone. Make it known that the hotline exists to prevent “one bad apple from spoiling the bunch” and does not exist to feed “Big Brother.” Since the hotline exists to protect everyone, it can be presented as a benefit. Also, let employees know that management will take an innocent unless proven otherwise approach with all reports. This will eliminate questions from a select, but skeptical, few.
Your hotline should not be a replacement for “open door” policies. Reminding employees that management’s preferred form of communications is through direct conversations signals that the hotline is not the first step in a sweeping cultural change but rather is a strengthening of the existing environment. To gain more trust, let employees know who has access to filed reports. This decreases any sense of “mystery.” Finally, consider implementing an anti-retribution policy protecting those who file reports. Awareness of such a policy is important for both the reporter and the accused; particularly if the accused is a superior to the reporter. In all cases, treat sincere reporters with gratitude and respect.
Trust is strengthened further via success stories. This is particularly true when physical well-being and jobs are protected. Knowledge of positive changes resulting from reports activates positive participation. Additionally, recurring communication is important for keeping the hotline top-of-mind. Communication can also be accomplished through posters, wallet cards and training “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, ” per Nick Lynch, CPA, CFF, CFE, Director of Forensic Accounting and Litigation Support at Kentucky based CPA firm Dean Dorton Allen Ford
Finally, internal guidelines must be established, including the requirement that at least two people be notified when a report comes in. This reduces the risk of collusion and minimizes the risk of a simple oversight.
Specific consideration should also be given to when and if to involve:
- Human Resources
- Finance and Accounting
- Internal Audit
- External Auditors
- Audit Committee
- Board of Trustee
- Information Technology
Bottom line: remember the “K.I.S.S.” principle – Keep It Simple Stupid!! With comparatively little planning and effort, organizational well-being can increase while expenses and distractions decrease.
Ray Dunkle is founder and President of Red Flag Reporting. After significant growth, resulting in clients throughout the U.S. and internationally, Red Flag Reporting spun-off from the CPA firm where Mr. Dunkle was a shareholder into an independent hotline provider focused solely on promoting safe and ethical behavior in the workplace. Red Flag Reporting’s hotline service is also licensed by CPA firms throughout the United States, including the founding firm, in order to assist their clients in protecting assets, employees, and reputations.
Mr. Dunkle can be reached at: (330) 860-5602 or by e-mail to: [email protected]