Fraud is an issue for all firms, small and large. Damages are not only monetary, but also can affect reputations and lower company morale.
Investing in an anti-fraud hotline is a cheap and effective way to provide a safe and confidential place for employees to report fraud or ethics violations. According to Raymond Dunkle II, CPA, ABV, ASA, CVA, CFE, CFF, CGMA, owner of Red Flag Reporting, 48% of frauds are discovered when someone speaks up. Creating an anti-fraud hotline allows employees to report suspicions without the fear of discovery or ridicule. Anonymity helps empower those who might otherwise feel intimidated.
“If someone files a report because they are aware of an issue, they probably aren’t the only person aware of the issue,” Dunkle said. “A lot of people don’t trust management – you have to give people a way to speak up.”
The best way to create a service of this type is to use a third-party provider to ensure confidentiality and impartiality. The service should use a toll free, answering machine-free nationwide hotline, with options for reporting via dedicated email, fax and regular mail. The center should be staffed 24 hours per day, 365 days per year, with multilingual capabilities.
Best practices typically recommend using only one hotline for all types of reports, including human resources problems, financial concerns and workplace issues. The average cost for this service is around $1,000 a year with a $1,000 start-up fee for companies with about 150 employees. A hotline service more than pays for itself after one instance of fraud detection or prevention.
Providing a hotline creates measureable results. Damages from fraud at organizations with a hotline average around $100,000, while those without averaged $180,000. Additionally, fraud is typically caught within 12 months for companies with a hotline, versus the 24 months a fraud may go undetected in organizations not using the service.
The power to reduce fraud ultimately depends on an organization’s decision to be proactive.
“If you don’t take action, you’re not being effective,” Dunkle said. Raymond Dunkle II, CPA, ABV, CVA, CFE, CFF, CGMA, president, Red Flag Reporting, explains why creating an anti-fraud hotline is the right decision for your firm or business.
Attend OSCPA’s upcoming Fraud and Forensic Accounting Conference Dec. 12 in Columbus to make sure you have the knowledge you need to prevent and detect fraud in your company or clients. Register today!