According to the 2022 Report to the Nations, published by the Association of Certified Fraud Examiners (ACFE), the most common way that internal fraud is detected is via anonymous tips. These accounted for 42 percent of the frauds that were uncovered, compared to just 16 percent of frauds that were uncovered in an internal audit and 12 percent that were uncovered in a management review.
One of the best ways to generate fraud tips is to establish a fraud or whistleblower hotline. “Tips via hotlines continue to be an important anti-fraud mechanism and contribute to the quicker detection of fraudulent acts,” notes the ACFE report. Establishing a whistleblower hotline can also help limit potential liability for board members if fraud does occur.
What is a Whistleblower Hotline?
A whistleblower hotline is any system or mechanism that allows employees to report concerns or suspicions about fraud to management or the board of directors. In addition to helping uncover fraudulent activity, a whistleblower hotline can also “have a deterrent effect on fraudsters by instilling a perception of detection in the minds of perpetrators,” notes the ACFE report.
While the word “hotline” conjures up images of a telephone line, the phone is not the only method whistleblowers can use to report their suspicions. A dedicated email address or web-based form can also serve this purpose. These allow for easy categorization of complaints and don’t force whistleblowers to formulate their thoughts on the spot. Younger employees may also be more comfortable with digital rather than verbal communication.
Anonymity is Crucial
Perhaps the most important component of a whistleblower hotline is that users be confident they will remain anonymous. Fear of retaliation or other consequences for blowing the whistle on suspicious activity can be a very real obstacle to reporting. “Employees must be able to trust that they can report suspicious activity anonymously or confidentially without fear of reprisal,” states the ACFE report.
Employees aren’t the only ones who can use a whistleblower hotline. Customers, donors, and other stakeholders can also use a hotline to report suspicious or questionable behavior. Publicize the hotline on your website, invoices, or purchase orders to make them aware of it.
Organizations must adopt a zero-tolerance policy when it comes to retaliation toward whistleblowers. Make sure employees and other stakeholders know that retaliation against whistleblowers is illegal and will not be tolerated.
It’s also critical to assure whistleblowers that reports of suspicious activity will be promptly and thoroughly evaluated. Once you receive a report, use a disciplined investigation approach by determining the proper course of action and making sure that any necessary follow-up actions are taken.
Communication and education are essential to ensure that employees and other stakeholders are aware of the whistleblower hotline and the fact they can report suspicious activity anonymously. Publicize the hotline phone number, email address, and website URL in employee newsletters, on bulletin boards, and on your intranet.
Do It Yourself or Hire a Specialist?
You can operate your whistleblower hotline internally or hire a third-party service provider to set up and operate it for you. Organizations often choose to work with an outside specialist if they believe this will make employees more comfortable using the hotline.
Many nonprofit organizations don’t have the resources to establish and maintain a 24/7/365 whistleblower hotline themselves. Using an independent company that specializes in providing this service may end up being more cost-effective in the long run because the service provider handles everything for you.
Once your whistleblower hotline is established, you should test and evaluate it on a regular basis. For example, how are contacts received and managed? Are reports of potential fraud or malfeasance being promptly investigated? Do employees feel comfortable using the hotline without fear of their anonymity being compromised or potential retaliation? Analyzing reporting trends from the hotline can help you strengthen your program.
Limit Fraud Potential
Establishing a whistleblower hotline can help limit the potential for fraud at your organization and possibly shield directors from liability if fraud does occur. Talk to your board about the possible benefits for your nonprofit organization.
Set the Right Tone at the Top
A whistleblower hotline is an important tool in creating a strong corporate culture that emphasizes ethical behavior. This starts by setting the right cultural tone at the top of your organization.
Tone at the top refers to the ethical atmosphere created by your organization’s leadership team. If your leaders are nonchalant and indifferent about ethics and act as if the rules apply to everyone except themselves, this attitude may filter down to the rest of the employees, who in turn may be less likely to use a whistleblower hotline to report suspicious activity they observe.