Whistleblowing is an essential component of Fraud Detection
What Every Company Director and Senior Manager Should Know About How To Give Employees Confidence In Whistleblowing
Risks faced by business
A risk is a threat or potential disruption to your business and its profitability. Risks may come from poor recruitment, unreliable suppliers, health and safety incidents, fraud etc. If a “risk” eventuates, you have a problem. You will almost certainly lose revenue, you may experience a disruption to your operations, you’ll probably experience a decline in profit and you may have to go to court either as a witness or a defendant. Those who commit fraud often do so because they think no-one knows what is happening.
The 2008 Report to the Nation on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners (ACFE) found U.S. organizations lose 7% of their annual revenue to fraud, amounting to losses of a staggering US$994 billion. Its key finding remained as found in 2002, 2004, and 2006 – i.e. that occupational fraud was much more likely to be detected by a tip than by audits, controls or any other means. 47% of the cases in its current report were detected by tips from employees, customers, vendors, and other sources.
Managing risks
You CANNOT eliminate risk – it is a fact of business. You CAN manage risk and minimise its impact. A key component of managing risk is KNOWLEDGE. Businesses who know the risks they face can manage those risks.
Whistleblowing provides knowledge
Whistleblowing has helped reduce up to 50% of corporate fraud and theft in the United States. Australia is lagging behind in implementing independent, anonymous whistleblowing services, therefore we have not seen the same reduction in these risks. A 2008 survey found the average fraud / theft per organisation in Australia results in a loss $1,500,000.00. Employees behaving badly have caused severe monetary losses and significant disruption to business.
What is holding Australia back?
There are a number of reasons why Australia hasn’t reduced fraud and theft to the same extent as the USA. The first reason is legislation. The Sarbanes Oxley legislation requires an “Independent Whistleblowing Service”. Your audit firm should not provide the service as they sign off on the accounts and the very nature of the information that comes from a whistleblowing service presents real potential conflicts of interest. In Australia auditor firms can provide a whistleblowing service with the cost included as part of the audit or consulting fees.
Many companies are concerned or oblivious about what will surface if a truly transparent whistleblowing service is introduced. They pay lip service in the annual report saying ‘we have one’; however, who knows about it or has confidence in it?
Telephone whistleblowing services
Several options are available from whistleblowing providers. The most common is telephone during business hours (the capacity of which is limited) and afterhours the service is often diverted to a mobile phone manned by an employee of the whistleblowing provider to make notes of the telephone conversation or the whistleblower is greeted with a message bank. The details of the call when answered are written up by the employee and logged into their reporting system. There is often reluctance on the part of employees to call anyone let alone leave a message – “will my voice be recognised?”. There is also the problem of transcribing the call – what was exactly said?
Secure Online Whistleblowing
Most employees have access to the internet and making a secure online report has many advantages compared to the telephone, email or post. The employee making the report can remain anonymous if they choose. A private online feedback forum can be used to help clarify the information being provided. An encrypted, secure independent reporting system available 24/7 means your staff can provide the knowledge you need to manage risks as soon as they become aware of any threat or risk to your business.