Fraud Hotlines: Don't Miss That Call: Design Tip Lines Properly to Protect Businesses from Theft
Andrews, Christine P., LeBlanc, Brian P., Journal of Accountancy
Tip lines are one of the most effective tools organizations possess for detecting and preventing fraud. Fifty-nine percent of forensic and valuation CPAs participating in the AICPA's 2011 Forensic and Valuation Services Trend Survey said internal whistleblower hotlines would lead to improvements in preventing fraud in the next two to five years. Internal tips were cited by business and industry CPAs participating in the same survey as the most common detection method for frauds that occurred at their organizations.
Because tip lines encourage and facilitate anonymous reporting, they are a proven fraud deterrent that can be successfully implemented without burdensome effort or expense. This article lays out a path for maintaining a tip line, including key features and best practices learned by public companies. It concludes with a description of different levels of service provided by web-based tip line providers, including features and estimated costs.
TIP LINES AND A CODE OF CONDUCT
Tip lines help enforce corporate codes of conduct that, at a minimum, help ensure compliance with standards, laws, and regulations. Best practices are derived from public companies that have been required to provide fraud reporting mechanisms as part of compliance with the Foreign Corrupt Practices Act and the Sarbanes-Oxley Act of 2002. In evaluating compliance and ethics programs, the Department of Justice (DOJ) and SEC are looking for programs that are thoughtfully constructed and well-implemented to help prevent, detect, and report fraud. In formulating sentences after adjudication, the DOJ and SEC review company ethics and compliance programs. A thoughtfully designed, good-faith effort can mitigate sentences.
Tip lines reinforce company policies, making it clear that unethical conduct is unacceptable, and help set a tone of control for an organization. Codes of conduct can be conceptual and values-based, or rules-based and specific. Ethics training is important to ensure that employees are clear on expectations. Training should be part of the new employee orientation process and also should be regularly reinforced along with the company code of conduct at meetings. Codes of conduct are implemented with guidance on what to do should an employee observe a violation of the code. This is where a company tip line provides support.
TIP LINE CHARACTERISTICS
Tip line design or contracting requires thoughtful planning and consideration of company operations. Does the company require multilingual services or 24-hour access 365 days per year? The following characteristics are key considerations in tip line implementation, monitoring, and governance:
* Tip input. The input process must serve the needs of employees, customers, suppliers, and other stakeholders. Tip lines can accept input by mail, email, web-based systems, and fax; in person; and via toll-free operators.
* Anonymity. Anonymity and continued confidentiality are critical tip line features. Just over 50% of tips come from employees. Any risk of identity disclosure could negatively affect employees' willingness to report.
* Availability. Tip lines are generally available 365 days per year, 7 days per week, and 24 hours per day. If a company operates globally, around-the-clock access is a necessity.
* Multilingual. Multilingual capability is necessary for employees as well as customers, vendors, and others.
* Case management. Case management functions allow the company to track a report from initiation through resolution. Lack of follow-up can increase vulnerability in the event of prosecution. Case management systems allow online access to filings; assignment of the case to the appropriate person for follow-up; assignment of priority level; actions taken and resolution; report generation; file attachment; and anonymous follow-up dialogue with the complainant for additional information. …