Learn How Your Business Can Benefit From a Fraud Hotline
According to the Association of Certified Fraud Examiners (ACFE) 2024 Report to the Nations, 43% of workplace fraud was first identified through tips, with 52% of those tips coming from employees, 21% coming from customers and 11% coming from vendors. In contrast, 14% of fraud was identified during an internal audit, and only 13% was detected via a management review.[1]
The report also found that organizations with reporting hotlines were nearly twice as likely to detect fraud via tips as organizations without hotlines — and 53% of tips in the study were provided through a formal reporting platform, such as a hotline.[2] These facts highlight the crucial rule reporting hotlines can play in a company’s fraud detection efforts.
What is a fraud hotline?
A fraud hotline is a method for reporting potential fraud, ethical issues and other concerns with how a company operates. It’s staffed by a third-party organization that’s unaffiliated with the company and typically allows for anonymous and confidential reporting.
Traditionally, fraud hotlines have been primarily phone-based; however, today most hotlines offer tip reporting via phone, email and online forms. Fraud hotlines are most effective when combined with a fraud awareness training program that teaches employees about the risks and costs of fraud and provides tips on how to spot fraudulent activities.
Why are fraud hotlines important?
Following are five reasons why hotlines play a key role in workplace fraud detection.
#1 – They protect employees against workplace retaliation.
When no hotline is available, employees may worry they’re putting their jobs at risk by reporting unethical behavior. In addition, without clear processes in place, they must decide whether and how to report fraud. In companies without a hotline, 29% of fraud is reported to a direct supervisor, and 16% is reported to a company executive. However, employees may worry that reporting fraud to higher-ranking personnel may result in retaliation or put their jobs at risk.
Most hotlines allow employees to make anonymous tips, which can help them feel more comfortable reporting fraud without the fear of retaliation. Even if your hotline doesn’t allow for anonymous tips, employees are still more likely to reach out to a third-party using a documented method, especially if the fraud involves a more senior employee or company executive.
#2 – They foster a culture of ethical responsibility.
Companies that wish to establish a culture of employee accountability and maintain high moral standards often find that a fraud hotline greatly enhances those efforts. A hotline demonstrates to employees that the company cares about their concerns and strives to foster a culture of responsibility and ethical behavior. Having a hotline in place can also help defer employees from engaging in fraudulent or unethical behavior, because they know there’s a reporting process in place that provides a perception of detection.
#3 – They reduce fraud-based losses.
According to the ACFE study, companies lose an average of 5% of annual revenue to fraud, which equals $5 trillion globally. The median loss per case of fraud is $145,000, while the average loss is approximately $1.66 million.[3] If your company isn’t taking steps to combat fraud, you could be losing millions of dollars per year.
#4 – They protect the company’s public image.
Unethical business practices have the potential to significantly damage a business’s reputation. However, without a mechanism in place to report unethical behavior, it can be difficult to keep fraud at bay. When left unchecked, unethical behavior has the potential to wreak havoc on a company’s public image and standing within the community. Hotline reporting often leads to early detection of unethical practices, which can allow companies to take corrective action before these issues gain steam.
#5 – They can provide peace of mind.
A fraud hotline gets all employees involved in looking out for fraud and unethical behavior. A finance team or management team can’t know everything that’s happening within an organization, so having the eyes and ears of all employees can be extremely beneficial and provide peace of mind to owners, boards of directors and management personnel.
Creative Planning Business Services has developed PlainSight, an easily accessible and completely anonymous fraud hotline. With PlainSight, you can protect your organization by empowering your employees to speak up when they witness suspicious or potentially fraudulent activity.
If you have questions regarding fraud prevention best practices, Creative Planning Business Services can help. Set up a meeting today with one of our certified fraud examiners (CFEs) for further guidance and to learn more about our services and in-house fraud hotline, PlainSight.
