Organizational fraud is a hidden crime. But when it is detected, it is often by a colleague or employee of the perpetrator who happens to discover the fraud – over 40% of the initial detection of a fraud is through a tip, most often from an employee. That’s why the ACFE Fraud Prevention Checkup highlights the necessity of a fraud reporting mechanism, in other words, a whistle-blower program.
An effective whistle-blower program has to both encourage the person who discovers the crime to report it and give him the means to do so. A potential whistle-blower may be someone who works closely with the perpetrator, with bonds of friendship or fears of retribution. The program needs to overcome these barriers to be effective.
In fact, research by the law firm Labaton Sucharow reported in Security Magazine in an article by Jim Ratley found that 34% of employees have learned about “workplace misconduct” and that most of them would report it if they could. The factors that could encourage them to report the issues included remaining anonymous, avoiding retaliation, and getting a reward.
The exact design of an effective whistle-blower program will vary with the size and type of organization, but there are some common elements that should always be included in an appropriate way.
1. Ensure the Anonymity of the Whistle Blower
An effective program has to ensure the anonymity of the reporter. Perhaps no other single factor is as critical in encouraging employees to report potential frauds.
The threats attached to being a “snitch” are so strong that a program that requires publicity will rarely work. Potential whistle-blowers need to be assured there will be no workplace repercussions, including informal ones, and anonymity is the surest way to achieve that. Beyond the current issue, there are some companies that will hesitate to hire known whistle-blowers in the future.
2. Make Reporting Easy
Establish and publicize a reporting mechanism that fits with the organization and its workers. It should always be possible to report in confidence, and it should always be free. This may be something like a hotline or helpline with a toll free number that is prominently included in the workers’ orientation and routine communications with the organization. If you have workers whose first language is something other than English, publicize the channel and set it up for users in that language.
3. Establish Consistent Protocols Across All Departments
From upper management on down, every unit in the organization should be on the same page regarding fraud reporting. This is a key leadership issue in establishing the mechanism consistent with the overall organizational culture and goals. It may be useful to assign responsibility for establishing this consistency to a single manager who is identified as the fraud prevention leader.
4. Be Prepared to Act When Fraud is Detected
Getting a report of fraud is a complex situation. You need to be able to evaluate the veracity of the report without minimizing it in order to avoid malicious false reports and ensure that accurate reports are recognized. If you determine that it is likely that a fraud occurred you should have a plan for responding that includes who should receive the report and what steps they take to determine a response. These first steps may have to happen quickly to prevent on-going damage.
5. Report to Authorities Appropriately
Legal authorities should be involved when appropriate and in a consistent way dictated by policy guidelines. Reporting accusations to the authorities should happen only after you have established that it is likely or plausible that a fraud occurred. This report should be made by someone identified by upper management who is in full possession of the facts in the case.
6. Set Up Recording and Tracking Processes
Each reported fraud should trigger a case file or incident report that collects relevant objective information and retains it in the system. This data will support the organization if legal authorities are involved and it will provide management with another source of evaluative information about the program. The progress of each case from report to resolution should be included in the records.
Every aspect of your fraud prevention program benefits from transparency. Use training and other communication channels to publicize your whistle-blower program. This helps encourage people to report and it may deter potential perpetrators before the fact.
For assistance crafting your whistle-blower program and for advice on other fraud prevention practices, request a meeting with a Lowers Risk Group consultant.