Fraud Hotlines

An effective hotline is clearly an important means of detecting fraud. More importantly, it is an effective means of shortening the duration of a fraud. According to the ACFE’s 2010 Report to the Nations on Occupational Fraud and Abuse, more than 40% of frauds are detected via tip-nearly three times more than by any other detection method-and two-thirds of those tips were made through fraud hotlines. In addition, a well publicized and widely supported hotline can also have a preventative effect; thus, by giving all employees a clear and secure way to report any suspected wrongdoing, an effective reporting mechanism can increase the fraudster’s perception that he or she will be caught and might deter him or her from commencing the scheme.

Organizational Control Environment

An organization’s control environment sets the moral tone of the organization and includes the integrity, ethical values and competence of the entity’s employees, as well as management’s philosophy and operating style. If the tone set by management is poor; if the owners, executives and managers exhibit less-than-ethical conduct, employees at lower levels in the organization will see that such activities are tolerated and will be more likely to engage in unethical, or even fraudulent conduct. As part of establishing an effective control environment, its is highly recommended that a written code of conduct is in place, which covers all employees, but emphasizes that, while the offical policy should reflect desired conduct, corporate culture will determine what occurs. Consequently, in addition to instituting formal policies covering employee conduct, management¬†must do the following:

  • Lead by example
  • Verbally communicate the entity’s values and standards to all employees
  • Establish and enforce penalties for improper conduct
  • Ensure that jobs are staffed by employees with requisite knowledge and skills
  • Establish appropriate reporting lines
  • Set human resources policies that ensure the organization hires, promotes and supports competent and trustworthy individuals

Employee Anti-Fraud Training

Because employees are on the frontline to observe suspicious acts by their fellow staff members, employee anti-fraud education is the cornerstone of an effective fraud prevention program. Without training about how fraud hurts the organization and it’s staff, what constitutes fraud, how to identify the red flags of fraud, how to report any suspected wrongdoing, and the consequences of fraudulent actions, many employees might miss; or even willingly turn a blind eye to the warning signs of theft and misconduct. To be most effective, such training should be based on the realities of the organization, rather than on generic anti-fraud messagesthat provide no real applicable value, and should be ongoing with refresher training held at least annually. Additionally, while employees at all levels should be required to participate in the anti-fraud training program, managers and executives should be provided with supplemental training that addresses the added fraud prevention and detection responsibility provided by their positions of authority.