Ethics Reporting Hotlines: The Key to Avoiding Financial Fraud

By: Shannon Walker

Human Resource teams are the gatekeepers of organizations as they are responsible for the vital screening process of every employee. The nature of the job demands the HR team be connected to each employee in some capacity. However, many may not hear from HR until they are involved with wrongdoing – either as a victim, perpetrator or witness.  

Occupational fraud is just one form of wrongdoing that can plague workplaces and create extensive investigations for human resource departments. However, in many fraud cases, another employee tips HR off internally. Here, the department is also responsible for protecting this reporter's anonymity when possible and ensuring they can return to work without repercussions from management or co-workers. Having a safe, secure and reliable reporting system for employees to use will help ensure that wrongdoing is reported while whistleblowers are protected.  

The Potential Impact of Fraud  

In the fall of 2022, the CBC reported that more than half a million dollars was lost from a Manitoba municipalities bank account. The details of the report state a suspected internal breach through multiple e-transfers led to a significant loss over the course of two years. The duration and corresponding loss for the case in Manitoba is not out of the ordinary. In fact, a typical case of occupational fraud lasts a year before it is detected, and the median loss for cases in 2022 was approximately $117,000.  

Cases of fraud in the workplace can range from activities including check tampering, payroll fraud, vendor fraud, theft and false expense claims, among others. While any of these activities will be a hit on the organization, they can also become a threat or danger to employees who accidentally witness wrongdoing. It is in everyone's best interest that fraud is reported as soon as possible, and HR personnel are responsible for fostering a space that allows employees to speak up.  

How Internal Reporting Catches Fraud 

In the case of the Manitoba municipality, the immediate process changes made included new limitations on e-transfer authorizations, additional approvals for financial reports and increased frequency of financial audits. What was not included was a way for council members to be able to report suspicious activity without fear of retaliation. This specific matter demonstrates how a majority of occupational fraud goes undetected and becomes more costly as the fraudulent activity persists, in this case, over the course of two years.  

Encouraging Internal Reporting 

The fact is, in any industry, employees take notice of wrongdoing around them quicker than managers, executives and HR personnel. It is the nature of a hierarchical organization and how jobs are delegated. However, this is a slippery slope for organizations as many can fall into an “us against them” dynamic where employees are protecting each other, and executives are retaliating against employees. To avoid this, the executive and HR teams must promote and create a space for employees to speak up against wrongdoing. 

The Role of Anonymity 

A crucial part of enforcing a speak-up culture is the role of anonymity. For employees, this helps to eliminate the fear of being ostracized or punished for coming forward with information that will potentially lead to the reprimanding of another employee. In the past, whistleblowers have had the negative connotation of ‘snitch’ or ‘rat’ attached to their person for going against their peers. However, the information whistleblowers carry is crucial to the organization's health, so they must be supported. Whistleblowers need to be encouraged, protected and certainly acknowledged for their role in serving the organization's and its employees' best interests. This is an integral component of any successful program and a foundational aspect of nurturing a speak-up culture.  

In 2022, 42% of all frauds were detected by tips, and more than half of these tips came from employees. While 70% of victim organizations recorded in the Occupational Fraud Study had hotlines, the fraud losses at organizations without hotlines were two times higher. Implementing an ethics hotline that can bring reports to the HR team efficiently and anonymously will be vital for preventing occupational fraud now and moving forward. 

Best Practices for Implementing Ethics Hotlines 

When implementing an ethics hotline, you can choose to either operate in-house or outsource the monitoring and auditing to a third-party operator. The size and organizational structure of your company will help determine which option is best for you. Smaller organizations may benefit from the more cost-effective option of operating in-house, while larger organizations may benefit from outsourcing as it is a more scalable solution.  

Either way, there are a few keys to success when implementing an ethics hotline in any organization, big or small. Awareness, accessibility, alternatives and anti-retaliation policies will be crucial for ensuring the effective implementation of an ethics hotline.  

Awareness refers to the need for employees to know about the reporting tool and how and when to use it. When introducing a new ethics reporting tool, be sure to have a training seminar with employees and integrate it into the orientation process for new hires. 

Accessibility will be essential for ensuring the reporting tool is used in a timely manner. When employees can access the system from anywhere in the world, any day of the year and preferably speak in their native tongue, they will be more likely to use the service.  

Alternatives are often necessary to ensure everyone is comfortable with making a report. While hotlines are the traditional method for reporting, in 2022, email and web tips, both surpassed hotlines as more common methods for reporting. Having an omnichannel system for reporting will further facilitate accessibility and encourage speaking up.  

An anti-retaliation policy will give your human resource team the authority to have zero tolerance for those who retaliate against employees for speaking up. Retaliation may come in the form of ostracization, bullying and harassment. This policy should require swift action and have no exemptions, meaning even senior executives will be held accountable if they retaliate against a whistleblower.  

Addressing Potential Roadblocks 

Misuse through underutilization or overutilization is the most common concern with hotlines. Outlining your policy from the top down and implementing it through ongoing training will be keys to mitigating risks. If your organization struggles with a toxic or “hush” culture were speaking up against wrongdoing is discouraged, you may struggle to transform this into a speak-up culture. As with any new process, implementation takes time, and the associated culture shift may take longer. However, if you stay diligent in enforcing awareness, accessibility, alternatives and anti-retaliation policies, you will start to notice the positive shift.  

Shannon Walker is the founder and president of WhistleBlower Security Inc. (WBS). WhistleBlower Security is a global provider of ethics reporting services, including a 24/7/365 Global Ethics Hotline and Case Management platform (IntegrityCounts), to provide organizations with an efficient and trustworthy ethics reporting process. Shannon has a B.A. from Simon Fraser University in British Columbia and an M.A. from Pepperdine University in California.