Economic downturns have historically led to increased incidents of fraud in the workplace. Concerns about economic uncertainty, coupled with fewer resources, layoffs and reduced salaries, can often trigger increased incidents of fraud that may have harmful and far-reaching effects on an organization.
Given the current economy, it`s important for an organization to monitor the effectiveness of its reporting mechanism`s ability to disclose fraud. One of the most common and practical means an organization can use to detect and prevent fraud is a dedicated hot line.
BDO Consulting worked with The Network - an anonymous tip line provider that serves more than 2,000 public companies in the United States, including approximately half of the Fortune 500 - to create the "2009 Corporate Governance and Compliance Hotline Benchmarking Report." The report analyzes more than 470,000 separate hot line calls from more than 1,300 organizations over the course of five years.
According to the report, hot line complaints per 1,000 employees have steadily increased from 8.3 in 2004 to 9.4 in 2008. Specifically, the percentage of reported fraud-related incidents rose sharply from nearly 11 percent in the first quarter of 2006 to 21 percent in the first quarter of 2009.
This rise in the reporting of fraud incidents likely stems from two important factors: Employees are more likely to commit fraud when suffering from financial hardship resulting from an economic downturn, and employees are more likely to report incidents of fraud that they perceive will affect their organization`s ability to function and that may impact them personally.
The greatest increase in reported incidents in the final year of the study occurred in organizations with less than 5,000 employees. These statistics rose to 14.4 per 1,000 employees in 2008, as compared with 9.5 in 2007. The increase is the likely result of numerous factors, such as an increased awareness of hot lines and an increased willingness on the part of employees to report incidents.
Although dropping from 39 percent in 2004 to 31 percent in 2008, the most common manner by which tip providers learned about their organization`s hot line remains through informational posters hung in workplaces. As organizations continue to rely more heavily on technology in the workplace to increase efficiency, there was a noted increase in intranets as a source of awareness about hot lines for employees, up to 9 percent in 2008 from 4 percent in 2004.
Transportation, communication and utilities, retail trade and service industries experienced the highest incident reporting rates.
Protecting Against Fraud
Organizations can use the information in this report to benchmark their own ethics and compliance programs and gain greater insight into the proactive measures that can be taken to prevent, detect and investigate fraud efficiently and effectively to mitigate risk.
As 71 percent of the calls analyzed in the report warranted an investigation, it`s clear that in a majority of cases, hot lines are an effective vehicle for uncovering fraud. Such data suggests that concerns about employees abusing hot lines for personal complaints may be less of an issue today, compared with the ability of hot lines to effectively bring forward incidents of fraud, especially in light of the contributing factors to committing fraud in the current economy.
It`s particularly important today that organizations have processes in place to investigate complaints of possible fraud as well as a method by which to manage valid reports appropriately. This means that complaints of fraud should be escalated to appropriate levels within an organization and, when necessary, investigated by experienced professionals within an organization and by independent external resources.
It`s also important to remember that deviations from industry standards may indicate employees are either not making calls to a hot line (e.g., the hot line is not being used effectively) or that a compliance program is operating at a high level of success. Each organization`s compliance program and processes should be evaluated thoroughly in order to understand specific reasons for such results.
Given the current economy, it`s important for an organization to monitor the effectiveness of its reporting mechanism`s ability to disclose fraud. One of the most common and practical means an organization can use to detect and prevent fraud is a dedicated hot line.
BDO Consulting worked with The Network - an anonymous tip line provider that serves more than 2,000 public companies in the United States, including approximately half of the Fortune 500 - to create the "2009 Corporate Governance and Compliance Hotline Benchmarking Report." The report analyzes more than 470,000 separate hot line calls from more than 1,300 organizations over the course of five years.
According to the report, hot line complaints per 1,000 employees have steadily increased from 8.3 in 2004 to 9.4 in 2008. Specifically, the percentage of reported fraud-related incidents rose sharply from nearly 11 percent in the first quarter of 2006 to 21 percent in the first quarter of 2009.
This rise in the reporting of fraud incidents likely stems from two important factors: Employees are more likely to commit fraud when suffering from financial hardship resulting from an economic downturn, and employees are more likely to report incidents of fraud that they perceive will affect their organization`s ability to function and that may impact them personally.
The greatest increase in reported incidents in the final year of the study occurred in organizations with less than 5,000 employees. These statistics rose to 14.4 per 1,000 employees in 2008, as compared with 9.5 in 2007. The increase is the likely result of numerous factors, such as an increased awareness of hot lines and an increased willingness on the part of employees to report incidents.
Although dropping from 39 percent in 2004 to 31 percent in 2008, the most common manner by which tip providers learned about their organization`s hot line remains through informational posters hung in workplaces. As organizations continue to rely more heavily on technology in the workplace to increase efficiency, there was a noted increase in intranets as a source of awareness about hot lines for employees, up to 9 percent in 2008 from 4 percent in 2004.
Transportation, communication and utilities, retail trade and service industries experienced the highest incident reporting rates.
Protecting Against Fraud
Organizations can use the information in this report to benchmark their own ethics and compliance programs and gain greater insight into the proactive measures that can be taken to prevent, detect and investigate fraud efficiently and effectively to mitigate risk.
As 71 percent of the calls analyzed in the report warranted an investigation, it`s clear that in a majority of cases, hot lines are an effective vehicle for uncovering fraud. Such data suggests that concerns about employees abusing hot lines for personal complaints may be less of an issue today, compared with the ability of hot lines to effectively bring forward incidents of fraud, especially in light of the contributing factors to committing fraud in the current economy.
It`s particularly important today that organizations have processes in place to investigate complaints of possible fraud as well as a method by which to manage valid reports appropriately. This means that complaints of fraud should be escalated to appropriate levels within an organization and, when necessary, investigated by experienced professionals within an organization and by independent external resources.
It`s also important to remember that deviations from industry standards may indicate employees are either not making calls to a hot line (e.g., the hot line is not being used effectively) or that a compliance program is operating at a high level of success. Each organization`s compliance program and processes should be evaluated thoroughly in order to understand specific reasons for such results.
