By White-Collar Crime Fighter - The Sarbanes-Oxley Act of 2002 requires audit committees of public companies to establish procedures to confidentially address all employee complaints regarding questionable accounting practices.
While that requirement doesn't specifically guarantee protection to whistleblowers who want to report other internal frauds, the spirit of the new law does strongly encourage companies to set up systems and procedures for encouraging employees to come forward when they observe or suspect internal fraud.
Key: With the new emphasis on corporate ethics in the aftermath of so many high-profile corporate financial scandals, whistleblower hotlines represent an increasingly important communication tool for employees to report violations of the company's ethical standards, and of the law—without fear of retribution.
THE FOUNDATION OF HONESTY
Obviously, the way to prevent retribution against a whistleblower is to protect the whistleblower by ensuring that the communication channel—the hotline—is completely confidential and completely anonymous.
But this is just a start. An effective anti-fraud hotline operation must also include...
- Unequivocal management "buy-in" and support. In the Enron case, top management distributed a Code of Ethics manual, but trampled on it with egregious criminal behavior for years and years.
Lesson: Without honesty at the top and a rigorous policy of implementing and enforcing high standards of ethical and legal conduct, a hotline is doomed from the start.
- A "point person" to develop, implement and manage the hotline.
Ideal: A senior manager with a reputation of unimpeachable ethical beliefs and behavior. This person, whose reputation lends credibility to the hotline, must write the hotline policy (or at least play a significant role in its formulation). He or she should be a director or vice president of security or loss prevention...internal audit/ compliance...or human resources.
Essential: This person must not only have a pristine reputation, he or she must be liked and trusted by employees enough to give them the confidence and comfort they need to bring sensitive information about others to his or her attention. The point person must also have complete independence and full authority to take necessary action when hotline information is received.
- Aggressive image-building initiatives to create and maintain awareness of and use of the organization's hotline.
Objective: To infuse the company's culture with a sense of urgency regarding "zero tolerance" of internal fraud. Essentials of success...
- Top management must communicate that it takes fraud prevention measures extremely seriously. Executives must continuously convey the message that the company's hotline is not a means of gathering "dirt" on employees, but instead is a positive tool for maintaining a culture of honesty, fairness and opportunity.
- The hotline "point person" who has established and now manages the system must get in front of employees on a regular basis by hosting new-hire orientations and breakfast meetings and conducting formal training sessions to discuss the company's stance on ethics and related policies and procedures. Key to these sessions should be the specific workings of the hotline... how to use it...and its benefits.
- Print the toll-free number of the hotline on employee pay stubs.
- Publicly acknowledge evidence of the hotline's success in terms of assets recovered or attempted frauds prevented.
- During managers' meetings, have the leader of the meeting ask if anyone in the group has called the hotline. (The desire for anonymity will result in no replies, but merely raising the question reinforces the importance of the hotline to the company's culture.)
- Require people conducting job interviews to mention the high priority of ethics at the company and the significance of the hotline in maintaining high standards.
WHY PEOPLE COME FORWARD
In addition to setting the right "tone at the top" and creating a hotline that supports a culture of ethical and honest behavior, your organization must set up its hotline program in a way that touches the emotional "triggers" that motivate people to come forward...
- Need and greed. In our experience, about 70% of calls to the hotlines we run on behalf of corporate clients are made because the caller wants to collect a financial reward.
Worth considering: A financial reward policy that entitles anyone in the company to a cash payment for providing information that leads to the recovery of stolen assets.
How much: We recommend a policy of paying rewards of at least $250 and up to $25,000. The amount should be 10% of recovered funds up to the $25,000 limit. If a whistleblower comes forward with information that results in the recovery of $300,000 in stolen goods or cash, he or she would receive the maximum—$25,000 as a reward. But if the recover is only $1,000, the whistleblower would get $250.
- Revenge. Employees often know who is involved in illegal activity because they themselves may have been involved. If they have been treated badly or for some other reason are angry at the wrongdoers, they have a strong motive to come forward with incriminating information.
- Common decency. Most employees are honest through and through and often find it intolerable to witness co-workers stealing, cheating, sabotaging or committing other unethical or illegal on-the-job acts. They are among those most willing to take action when the company activates a hotline system. They do it because they are seeking a way to relieve the frustration and anger they feel about what they consider to be intolerable conduct.
PUTTING IT ALL TOGETHER
Important: A hotline tip should never be the sole basis of a criminal or civil complaint against a suspect. It should serve as a critical component of a thorough internal investigation aimed at obtaining first-hand information about the incident.
Companies considering introducing (or retooling) a hotline program must first decide if they want to run it internally or outsource it to an independent firm. There are pros and cons to each.
Internal hotlines are sometimes weakened because employees fear retribution if they are identified. It can also be more expensive to provide internal 24/7 coverage with multi-lingual operators where necessary.
However, many companies feel secure controlling their own hotlines because they can monitor the operation more closely.
With externally run hotlines, employee fears are often alleviated by knowing that the person answering the phone doesn't work for his or her company. Plus, the costs are reduced by not having to hire full-time employees to provide round-the-clock coverage.
However, it can take time to find the best service for the company's needs and budget.
By, White-Collar Crime Fighter source: Frank Halpin, CFE, Global Security, Honeywell Corporation. Frank is an experienced loss-prevention professional who formerly ran Hotline Resources International, a 24/7 anonymous and confidential service for whistleblowers. Frank can be reached at [email protected]