Providing employees and stakeholders with a hotline for reporting fraud and other unethical behavior is an important step in promoting ethical workplace practices and uncovering problems before they become out of hand. As a factual example, the Association of Certified Fraud Examiners’ Report to the Nations consistently finds that the number one way fraud is detected is through tips. More than a decade worth of data collected by the Association of Certified Fraud Examiners (ACFE) reveals that for organizations with a hotline, 46% of fraud cases are detected by tip, while for organizations without a hotline, only 30% of cases are detected by tip. Furthermore the ACFE reports that organizations without hotlines are over twice as likely to discover fraud by accident and are over three times as likely to have fraud uncovered by an external audit. The ACFE explains that this is important because tips allow fraud to be uncovered more quickly and with less damage than other detection methods.
While studies clearly demonstrate the effectiveness of hotlines, it is important to remember that they must be properly implemented in order for your organization to reap the benefits. Imagine the following scenario:
As a part of your onboarding process, you read a one-page document stating that your organization uses a third-party hotline and that those who use it are protected from retaliation as long as reports are made in good faith. You then check a box to indicate that you have read the company’s policy for reporting unethical behavior in the workplace, never to hear about it again. Over the next two years, you attend numerous trainings and meetings. While many topics are discussed, workplace ethics, including the hotline, is not one of them. Around the two-year mark, you begin to suspect that your immediate supervisor is adding false expenses to your department’s monthly expense reports. Your department works closely together on shared projects and are typically aware of each other’s day-to-day contributions.
That said, you have noticed several entries over the past few months that do not seem to align with current projects, but you also realize that you do not know everything about every expenditure. Even though you find the situation very suspicious, you cannot be completely sure that you are correct. Furthermore, these suspicious expenses have only added up to $1,500, and your department spends an average of $100,000 per month. You believe something is wrong, but you also know that your supervisor is vengeful. What would you do? How much money would you have to suspect your supervisor of stealing before making a report? Would you be more willing to speak up if your organization frequently promoted ethical workplace practices and the use of its hotline? Would knowing that the hotline allows anonymity and is hosted by a third party give you comfort if you otherwise feared retribution?
As illustrated by the above scenario, the decision to report suspected fraud or unethical workplace practices isn’t always straightforward. Potential whistleblowers may doubt themselves or fear retaliation in the event that their claims are unfound. According to the Fraud Magazine article, “Top 10 factors leading to hotline distrust,” by Ryan C. Hubbs and Julia B. Kniesche, “Trust is the primary determining factor as to whether an employee will come forward with a concern, Management might try a quick-fix reaction to a messy investigation with more hotline posters or ask the CEO to use the word ‘compliance’ in every presentation or meeting, but employees often view these ploys as mere window dressing.” With this in mind, what can organizations do to gain employee trust in a hotline?
The ACFE Insights article, “5 Ways to Build Trust in a Hotline Reporting Program,” shares the following suggestions:
- Training and awareness: employees should know how the hotline works and why it is valuable to the organization.
- Ongoing communication and accessibility: Information about the hotline reporting program should be shared frequently. Information about using the hotline should be easy to find and should be accessible to all people within an organization. Consider ways to make the hotline more accessible. For example, is information provided in multiple languages, and can reports be made in these languages?
- Transparency: Explain the reporting and investigation process, and share what to expect when a report is made. Explain how those who make a report will be protected from retaliation.
- Proficiency and objectivity: Those managing the hotline should be well trained to handle reports and systems must be in place to ensure that reports are investigated objectively.
- Assessment: Data should be collected to measure the effectiveness of the hotline reporting program. For example, surveys of employees’ perceptions of the program and internal and external audits should be conducted.
In addition to the above suggestions, the Harvard Law School Forum on Corporate Governance’s publication, “Elements of an Effective Whistleblower Hotline,” recommends using a hotline for multiple purposes. It states, “Companies should expand the reasons an employee may contemplate calling the hotline, such as having the hotline also serve as a helpline, as this may alter the perception or negativity associated with hotlines and facilitate reducing the fear of calling and the associated stigma.” Many employees may feel that the use of a hotline must be reserved for “worst case scenario” situations. When organizations encourage the use of its hotline for making suggestions and reporting minor concerns in addition to major ones, employees may feel more comfortable making a report. It is important that employees feel comfortable expressing even minor concerns because this can prevent potential issues from spiraling out of control.
To summarize, an effective hotline reporting program is built on a foundation of trust. Employees and other stakeholders must feel comfortable using an organization’s hotline to give suggestions and to report concerns, big and small. When hotlines are effectively implemented, organizations can quickly uncover and address unethical practices, reducing costs and preventing reputational harm.
For more on the power of hotlines, see our article here.