Picking up Fraud on the Line: Using Employee Fraud Hotlines
March 2008
IN THIS ISSUE
— From the Water Cooler to the Big House: Detecting Employee Fraud Through Hotlines
— Case Studies in Hotline Effectiveness
— In the next issue
GREETINGS!
Welcome to the March 2008 edition of our newsletter! In this issue, we’ll examine the effectiveness of employee tip hotlines in detecting and deterring fraud, as well as their cost and implementation.
FROM THE WATER COOLER TO THE BIG HOUSE: DETECTING EMPLOYEE FRAUD THROUGH HOTLINES
Most large companies have one, and in the post-Enron, Sarbanes-Oxley environment, the employee fraud hotline referenced in your company’s Standard Operating Procedures manual could be a key way for your employees to combat fraud on the job.
In its 2006 Report to the Nation, the Association of Certified Fraud Examiners said 44 percent of frauds with potential or actual losses of $1 million were detected using tips from employees or the public. This percentage was far ahead of detection via internal or external audit.
CASE STUDIES IN HOTLINE EFFECTIVENESS
Development of a 24-hour, completely anonymous hotline for reporting potentially fraudulent activity has led many organizations to usher in significant reforms in their internal controls or other policies once the fraud was uncovered. In its 2006 annual report to Congress, the Inspector General for the Social Security Administration reported receiving nearly 47,000 allegations of fraud regarding Social Security numbers or other violations. Of these, more than 8,000 were from anonymous tips, while law enforcement referrals resulted in double that number of inquiries. The anonymous inquiries led to successful investigation of fraudulent disability benefit claims, for example.
In the past, we have successfully worked on employee harassment and fraud cases where employee tips were an important part of the equation. While the ACFE operates its own hotline service, EthicsLine, many private operators do as well. The start-up costs can be somewhat daunting, but the cost savings realized by deterrence of fraud is likely to be far greater over time.
IN THE NEXT ISSUE
In the April issue, we’ll examine government contract fraud, a hot button issue this election season.