Why do you need a fraud hotline or reporting service?

It’s a fact. Small businesses (businesses with <100 employees) lose on average, 5% of their revenues to fraud. Out of all the anti-fraud controls that a business may have to deter fraud, the most important control, which most small businesses seem to ignore, is their honest employees. Employees are the eyes and ears of the company and most employees would choose to report fraud or wrongdoing if they had knowledge of it. However, many employees are fearful to report fraud or wrongdoing directly to management for fear of reprisal, retribution or loss of their job. With an anonymous and confidential reporting system, employees can report fraud or wrongdoing anonymously to a neutral third party, thereby removing their fear and apprehension. Over 40% of all frauds are detected by anonymous tips. Having a fraud reporting system sends a message to employees, as well as vendors and customers that management takes fraud very seriously and has zero tolerance for it. A fraud reporting system also has the effect of instilling the presence of a “watchdog” within the organization. Employees are far less likely to commit fraud or wrongdoing against their employer if they perceive that they may be detected. Lastly, if fraud is already taking place in the organization, a fraud reporting system can drastically shorten the duration of the fraud. If you consider that the average fraud in a small business lasts 12 to 18 months and the average loss is in excess of $200,000, a company could end up saving many thousands of dollars in losses.

Catch the warning signs of fraud in non-profit organizations

With their high fund-raising activities and performance goals, and volunteers handling money and keeping accounting records, non-profit organizations can be prime targets for fraud. Below are some of the red flags to watch for:

  • Budget cutbacks
  • High turnover
  • Refusal to take legitimate perks
  • Overemphasis on short-term fundraising goals
  • Poorly monitored supervision and controls
  • Bounced checks
  • Things don’t add up
  • Anonymous tips
  • Lifestyle or behavior changes
  • Inattention to details
  • Failure to conduct background checks on those  handling money
  • Keeping problems a secret
  • Failing to investigate and prosecute offenders