How to Find and Stop Fraud Within Your Organization

GREATER KAILASH, India - Oct. 15, 2013 - PRLog -- According to Association of Certified Fraud Examiners tells us that the typical organization loses 5% of its annual revenue to fraud. You might think, in response: “Not us. We’re so small there’d be no way to hide it.” Or, “Not us. Our employees have been with us forever. They’d never do anything to hurt us.” Or, ”Not us. Our auditors are as thorough as they come. They would have noticed.”

But that is wrong, and it puts your business at risk.  Actually the ACFE's research has consistently shown that small companies are equally victimized by fraud; fraud is frequently perpetrated by loyal, long-tenured employees; and, shockingly enough, external audits detect frauds only a fraction of the time (4.6%).  In fact, 40% of frauds that are detected are found because of a tip. Yet despite the importance of tips, the least frequently implemented anti-fraud control is rewards for whistleblowers (7.4%), and hotlines are not ranked as leading anti-fraud tools. Why?

Whistleblowers have a history of being treated with less than dignity and respect, considering their courage and bravery. In a recent case where a federal judge limited the definition of a whistleblower. An accounting employee at a public company had worked for 31 years in the accounts payable department. When he refused to process event expenditures because he considered them improper, he soon became the target of an internal investigation and told not to bother with his scheduled performance review. Interestingly enough, the company’s tax department later declared that some of the event costs had been improperly categorized as business expenses. The accounting employee sued the company, alleging that it had retaliated against him. But a Federal judge ruled that he failed to qualify for whistleblower protection because his complaint focused on tax treatment and internal company procedures, noting that the complaint never alleged that the fraud was one that would harm investors.

After reading about such a case, why would anyone risk their career to report wrongdoing to management? The Dodd-Frank law makes it even more complicated for public companies. It puts significant rewards in place to encourage whistleblowers to report their tips to the Securities and Exchange Commission—up to 30% of monetary sanctions in $1 million-plus matters—and adds protection from retaliation. The SEC allows whistleblowers to internally report matters and still be eligible for SEC rewards (assuming they report to the SEC within 120 days), but a volatile environment for whistleblowers has now become even more complicated.

What can companies do differently to encourage employees to come forward with tips without fearing retaliation?  I have three recommendations.

First, change the perception. A common problem with current hotlines is their stigma and negativity. Employees are concerned about being labeled tattletales or snitches. So why not expand the hotline’s purpose?


Next, add a reward. If you sincerely want to change the perception of a hotline, put your money where your mouth is.


Finally, remember that it starts at the top. It all begs a question: If the CEO can’t be a respected whistleblower, who can? It starts at the top. If the board of directors and chairman are not interested in legal and ethical practices, hotlines and whistleblowers serve no purpose. It is only when there is commitment to integrity from the highest possible places that a company will be effective in its implementation and use of hotlines.

The question is: Is your business willing and able to make the changes that allow a hotline to be effective?