Struggling to See the Benefits of an Ethics Reporting System?

Posted by Amanda Nieweler

on October 21, 2015

Breaking down the barrier between you and your ethics reporting systemLet’s break down the barriers between you and your ethics reporting system

The importance of ethics continues to be spotlighted with the daily news headline coverage of our most cherished brands and their leaders. Most organizations don’t plan to wake up one morning hoping to find themselves suddenly exposed to an unexpected liability or unwelcome scrutiny. But this vulnerability is more significant with the increase in occupational fraud stimulated by a tough economy, and pressure to succeed. Resources are stretched and revenues are shrinking – the losses from abuse and fraud are just too great to ignore.

Now more than ever, it’s important to mitigate risk. All organizations, from publicly traded companies, to non-profit groups face many challenges maintaining proper controls. One of the simplest and most cost effective ways to accomplish this is by implementing an anonymous, third-party hotline.

Fraud costs everyone more if it’s ignored. No organization is immune to fraudulent or unethical behaviour, and no organization can afford the costly consequences. And beyond the direct financial impact, organizations can face regulatory violations or noncompliance issues. Public organizations face penalties for failing to meet SEC standards, and non-profit entities could face the loss of government funding. And smaller organizations? One instance of fraud can set business success back significantly, if not ruin that business all together.

For companies struggling to see the benefits of a whistleblower program, here’s a few facts:

More fraud is discovered by an anonymous tip
While it is important to continue to utilize multiple fraud deterrent methods such as external audits, separation of duties, and fraud awareness training, the most important tool an organization can implement is a confidential hotline. More fraud is detected by tips than by all other means combined. A hotline is simple, provides an immediate means of communication and offers support and encouragement to employees.

One third of business failures are due to internal theft and fraud
This is one fact that all small business owners need to be aware of. Many smaller firms do not have the means or sophistication to implement strong internal controls, so the extent of their losses can be devastating for that business. This alone makes it even more imperative for smaller operators to have a hotline set up to ensure they can gain access to information earlier to mitigate any potential losses.

A large number of private companies have reported experiencing fraud
Public companies may be mandated to have a whistleblower system in place, and more and more non-profits are implementing these systems as a way to protect their reputation and mitigate risk, private companies who believe they don’t need these systems are setting themselves up for potential disaster. To be naive and think it won’t happen because you know your team or because everyone has worked together for a long time, is neither strategic or logical. Most fraud is conducted by long-term employees who have access to accounting, operations, sales or manufacturing departments.  Private companies need to ensure they put internal controls in place.

Fraud can continue for up to 18 months before detection
Eighteen months is a heck of a long time to continually bleed a company. It can be devastating and at times non-recoverable for many businesses. The more internal controls are in place, the more quickly fraud will be discovered. Employee training, management’s commitment to a whistleblower policy, and anti-retaliation practices are key to ensuring staff feel confident about coming forward.

Small businesses are very vulnerable to fraud
Because small businesses are usually focused on the day-to-day operations, strategic planning can often fall off to another day. While implementing vast internal controls is best, instituting small measures to begin with is a good place to start. Again, setting up a hotline is easy, cost-effective and an instant way to gain access to information that could save your business.

Over half of victim organizations never recover their losses
Most victim organization discover their losses long after they have been spent. Studies show that the majority of business fraud does not go into investment properties or other such recoverable items, rather the perpetrators used it to support lavish lifestyle enhancements and spending, gambling or other addictions. In a nutshell – you’re not getting your money back.

Download our feature eBook that will help you better understand why third-party ethics reporting should be part of your internal controls.

eBook: 7 Reasons to Implement a Whistleblower Hotline