According to the Association of Certified Fraud Examiners (ACFE), 51% of organizations have uncovered more fraud since the beginning of the pandemic, and 71% expect the level of fraud impacting their organizations to increase over the next year.¹ Fraud could significantly impact the bottom-line of any organization if it is not identified in a timely manner. The good news is that organizations can implement a whistleblower channel, which could reduce their risk of fraud.
The following are key features to an effective whistleblower channel:
Anonymity
The first feature that an organization’s whistleblower channel should include is anonymity. Maintaining anonymity will encourage individuals to come forward without fear of retaliation or job loss. If employees perceive that they may be fired for whistleblowing, they are significantly less likely to “speak up” and thus, they may withhold pertinent information that could be adversely impacting the entity. Although certain laws exist to protect the whistleblower, such as the Whistleblower Protection Act, one may choose to omit key information merely for the purpose of avoiding potential legal proceedings if retaliation should occur. Whether a company appoints a member of the Board or Senior Management or a third party as the party responsible for receiving whistleblower tips, the whistleblower’s identity should remain anonymous.
Independence
While anonymity is key, this may not be possible in all situations, especially when it is someone internal to the entity who is responsible for providing the information. Further, the perception of the lack of anonymity on behalf of the whistleblower may also exist in this scenario. For these reasons, best practices include outsourcing the whistleblower channel to an independent third party. Delegating this responsibility to a third party not only ensures that the whistleblower’s identity is kept private, but it also provides a sense of security to the employee that their identity will not be disclosed to anyone in the organization.
Timely Response
Timely responses are key to any whistleblower channel. If an entity fails to prioritize any investigation into a tip for weeks or months, invaluable information may no longer be available or useful, or the employee in question could have left the organization. Further, if the subject in question becomes suspicious, that individual may erase and/or replace key evidence, posing a challenge to the investigation. It is important to note that a timely response to a tip is only possible if the tip is relayed to the appointed party within the organization in a timely manner. This becomes easier when a third party maintains the whistleblower channel, since this is their primary focus, whereas employees or Board members may have other pressing responsibilities.
Reporting
Accurate recordkeeping is also a necessity when it comes to an organization’s whistleblower channel. Maintaining accurate reports can assist with linking key pieces of information that could be used should an investigation take place. Further, if the entity presents the facts to the authorities, proper records and reports must be provided. Moreover, to avoid potential liability to the organization, proper investigative reports must also be maintained.
The ACFE found that initial detection of occupational fraud is found through a tip line 40% of the time.² Not only does a reporting channel expose potential wrongdoing or fraud occurring within the organization, maintaining a whistleblower channel is also a requirement for public companies in the United States under the Sarbanes-Oxley Act of 2002. The benefits of a whistleblower channel are huge, ranging from proactively detecting and addressing areas of misconduct to complying with laws and regulations. Additionally, a whistleblower channel can help mitigate fines and penalties, assist in reinforcement of the ethics corporate culture and aid in uncovering areas that might need improvement.
A whistleblower channel is the first step to secure the internal controls at your business. Hiring an expert in the field can ensure your channel is in top notch condition to start effectively safeguarding your assets.
GG Observations
If your organization needs assistance with improving and/or implementing a whistleblower channel, reach out to our team at GG LLP to find out ways in which we can help.
¹ https://www.acfe.com/covidreport.aspx
² https://www.acfe.com/uploadedFiles/ACFE_Website/Content/review/diafp/08-Implementing-a-Whistleblower-Helpline.pdf
