Best Practices for Ethics Hotlines

By By Tony Malone, ARM, CPCU

Most frauds are found through tips and most tips come through hotlines. Here are some suggestions if you're beginning a hotline for the first time.  

One of the many effects of the Sarbanes-Oxley Act of 2002 is that thousands of public companies are now considering offering their employees anonymous hotlines. This is an important step toward minimizing losses due to fraud. Respondents to the survey that formed that basis of the 2002 ACFE Report to the Nation, said that fraud was detected by tips 46 percent of the time, which made tips the leading method for detecting fraud. The study also found that companies with fraud hotlines cut their losses by approximately 50 percent per scheme presumably because the fraud was discovered faster through the tips.

While internal audits, external audits and background checks also significantly reduced losses, the greatest reduction in loss was associated with anonymous reporting mechanisms, such as a hotline.

Beyond the obvious financial benefit of stopping fraud in its early stages, a hotline, such as EthicsLine, endorsed by the ACFE, can give a company the opportunity to limit liability of offenses such as discrimination. Also, uncovering and dealing with issues long before they are exposed in the media can protect a company from the destruction of goodwill in the eyes of investors, customers, and other stakeholders.

If you're preparing to implement your first hotline, there are many actions that you can take to maximize its effectiveness.

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