Insights: Article

Why Your Business Needs a Whistleblower Hotline

By Kari Yonke

April 27, 2017

The Sarbanes-Oxley Act of 2002 requires publicly traded companies to provide a confidential way for employees to report fraudulent and wrongful behavior. In 2005, the American Institute of Certified Public Accountants (AICPA) recommended that all organizations implement a whistleblower system for reporting wrongdoing, regardless of whether the organization is publically traded or not. Why? Simply put, all businesses—large and small—are at risk from both intentional ethical and legal violations, as well as unintentional mistakes that may not be easy to report.

Take fraud as the most obvious example of why a business might benefit from an anonymous reporting hotline. In 2014, the Association of Certified Fraud Examiners (ACFE) presented a report on nearly 1,500 fraud cases from around the world to the Nations on Occupational Fraud and Abuse. The report found that the median loss resulting from a case of fraud was $145,000, while over a fifth of fraud cases resulted in losses of at least $1 million. In many cases, small businesses are at greater risk of fraud because they lack the oversight and controls that large, publicalytraded corporations have in place.

What’s to Report?
Financial fraud isn’t the only concern for businesses. Ethical violations of every sort imaginable can take place at any organization and within any department. According to a 2013 National Business Ethics Survey (NEBS) conducted by the Ethics Resource Center, 41 percent of the respondents indicated they witnessed some form of workplace misconduct, including conflicts of interest, discrimination and violations of health and safety regulations. With an anonymous whistleblower hotline in place for employees, tips can be submitted safely and securely for all manner of wrongdoing:

 Financial: Every business is at risk of financial abuses and errors. From inadequate accounting procedures to audit issues and simple billing errors, there are a plethora of opportunities for mistakes to be made or criminal activity to take place.

 Ethical: Some business practices may not necessarily break any laws, but they would still be considered unethical if utilized improperly. Ethical breaches can include anything from code of conduct violations to outright theft, including intellectual property theft.

 Privacy: In today’s digital world where everyone and everything is connected and online, privacy concerns have never been more pronounced. Identity theft can happen to anyone, and breaches can occur anywhere personal information is stored. The health care industry is particularly at risk for inadvertent confidentiality breaches.

 Security: Security goes hand-in-hand with privacy. Securing both physical and digital property is becoming harder and harder with the advancement of technology. Hackers target everything from electronic door locks to customer databases.

 Safety: Businesses that don’t take safety seriously put their workers in jeopardy, as well as their customers. OSHA violations aside, an unsafe work environment is neither efficient nor profitable.

 HR Violations: No department benefits more directly from the implementation of a reporting hotline than human resources. HR professionals constantly deal with ethical and workplace safety issues, from employee handbook violations to harassment and discrimination.  

Hotline: Anonymity + Simplicity
According to ACFE’s 2014 Report to the Nations, anonymous tips were the most common fraud detection method, regardless of whether the organization had a hotline system in place. However, tips were submitted at a much higher rate when the company had a hotline, as illustrated by the below chart.

 

With an anonymous, easy-to-use reporting system, employees feel much more comfortable reporting wrongdoing. They know their name won’t be attached to the tip. They won’t fear retaliation. But they WILL report the issue that could end up saving the organization money and even lives thanks to early detection and correction. Having adequate controls that seek out fraud, rather than relying on external or passive detection methods, can dramatically reduce the cost and duration of illicit activity. Such controls also allow for more information to be gathered up front.

Eide Bailly’s Third-Party Hotline Service
As a public accounting firm, Eide Bailly may not be the obvious partner for setting up an anonymous reporting system. But when you consider that an accounting firm’s role is to ensure accurate financial reporting, conduct audits and manage risk on behalf of their clients, choosing Eide Bailly to help you with your own risk management makes total sense.

Eide Bailly provides anonymous, third-party hotline services to clients of all sizes and in all industries. The firm operates the hotline, be it via phone or anonymous online reporting, and acts as an independent resource that your employees can rely on to discuss confidential concerns. The process protects the individual reporter, as well as the information, ensuring it reaches the necessary level within your organization so the matter can be resolved promptly, safely and securely.

Don’t let a situation get out of control simply because someone in your organization doesn’t feel comfortable reporting what they’ve seen. Setup an anonymous hotline reporting system that empower your employees to speak up when they see something unsafe, illegal or unethical. It could save your business.

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