Attitudes toward Whistle-Blowing Hotlines

Article excerpt

How would you feel if your employer set up a whistle-blowing hotline and encouraged all employees to report their fellow workers who were stealing from the organization, or who were operating inefficiently? Many organizations, both public and private, are doing exactly that. Surprisingly, the results have been quite favorable. Honest employees have not felt threatened by such hotlines, and the reports that have been made through the hotlines have saved companies millions of dollars.

GOVERNMENT HOTLINES

The United States General Accounting Office (GAO) established a nationwide whistle-blowing hotline in 1979 to combat fraud, waste, and abuse in federal expenditures. That hotline was extremely successful, generating about 11,000 calls per year. The GAO auditors did not even have time to investigate all of the leads provided by (usually) anonymous tipsters. A large number of the leads have proven to be accurate, and the result has been that the GAO has recovered millions of dollars stolen from the federal government. Many more unsubstantiated allegations have led to changes in internal controls to minimize the possibility of future improper activity. The success of the GAO hotline has led other agencies to establish their own. Virtually all federal agencies now have their own nationwide hotlines to encourage reporting of illegal acts and inefficient operations by government workers.

The benefits are both measurable and unmeasurable. Many feel that the existence of a whistle-blowing hotline is a deterrent; employees may be less likely to commit a fraud when they know one exists. The former comptroller general of the United States, Charles Bowsher, has publicly stated that "the existence of the hotline has been a deterrent factor."

The problems with transferring the government's experience to the private sector are twofold. First, the government's hotlines are national toll-free numbers, and thus do not rely predominantly on employees as sources of allegations (however, more than 25 percent of the informants are known to be employees). Second, differences between the government and the private sector are well known. For example, the lack of a bottom line in government may make hotlines more effective there than in the private sector. A business that experiences a fraud may lose money or even go out of business, but a government agency that experiences a fraud will just raise taxes. Thus, the business manager may realize that a fraud has been perpetrated because the company is inexplicably losing money, while the government agency may not be able to make the same observation without the help of an informant.

HOW IS FRAUD DETECTED?

The CPA firm of KPMG Peat Marwick recently conducted a study of fraud and how it was discovered. The ways in which 2,000 large companies found fraud are summarized in the list below. The percentages add up to more than 100 percent because most of the companies had more than one fraud case in a year, and various means were used to uncover the multiple frauds.

A. Internal Controls (59 percent) B. Internal Auditors (47 percent) C. Notification by Customers (38 percent) D. Accident (32 percent) E. Anonymous Letter (28 percent) F. Notification by Supplier (13 percent) G. Notification by Police (12 percent) H. Notification by Employee (10 percent) I. Notification by Government Agency (10 percent) J. External Auditor (3 percent)

Some of the ways fraud is uncovered are routine corporate functions, such as using internal control systems and having an internal audit staff. …