Businesses and other institutions that have implemented effective ethics hotline systems significantly increase their chances of catching fraud because tips, often received via an ethics hotline, are the most common means of detecting fraud or other ethics violations.

If that is not enough of an incentive to introduce and maintain an ethics hotline, here are six related benefits for your consideration.

– Compliance with regulatory requirements and internal policies

– Risk avoidance

– Anonymity and confidentiality

– Cost-effectiveness and scalability

– External management available

– Support for ethical values

Compliance with regulatory requirements and internal policies

As Ethical Advocate has advised before, few businesses are not subject to at least one regulatory requirement that either mandates or encourages the use of anonymous reporting mechanisms, such as ethics hotlines, to protect whistleblowers. Even in the absence of external regulatory requirements, the presence of effective ethics hotlines can help a business monitor adherence to its own policies by encouraging staff and relevant third parties to report concerns.

Risk avoidance

Tips received through an ethics hotline can alert businesses to possible inappropriate or illegal behavior, and help them take early action to reduce losses or to avoid sanctions. Many hotlines provide callers with anonymity, which can also reduce the risk of retaliation claims.

Anonymity and confidentiality

Ethics hotlines can (and should) be set up to ensure anonymity and confidentiality for employees, vendors, or others who wish to report concerns or leave feedback. Such features will likely encourage calls from employees or others who feel uncomfortable “telling on” others but who want to do the right thing by the company as well. The promise of anonymity and confidentiality can also encourage calls from employees who are worried about retaliation.

Cost-effectiveness and scalability

Ethics hotlines are cost-effective. They can start small and basic, and be scaled up to meet the specific needs of the business.  Costs are especially manageable when hotline services are contracted to an external third-party business that specialized in managing hotlines. In addition, the cost of setting-up and maintaining an effective system must be weighed against the potential for loss. According to reports by the Association of Certified Fraud Examiners (ACFE), typical organizations lose five percent of revenues each year to fraud. Twenty-two percent of cases involve losses of at least $1 million and the overall median loss is $145,000.

External management available

It is common for ethics hotline services to be outsourced to third party providers like Ethical Advocate.  In addition to cost savings mentioned above, external services provide well-trained, skilled staff members who provide coverage 24 hours a day, 7 days a week, and 365 days a year.  External providers are seen as unbiased third parties, and offer an additional assurance of anonymity to potential callers/

Support for ethical values

When part of a broader culture that supports ethical values throughout the organization, the presence of an ethics hotline reinforces the sincerity of a business’s ethical message. The long-term objective for any business or other institution should be to build and sustain a strong organizational culture of ethics. Ethics hotlines are a tool in building that culture.

Ethical Advocate provides comprehensive ethics and compliance solutions, including ethics and compliance training and confidential and anonymous hotlines. Contact us for more information.

Additional Reading

ACFE. Report to the Nations on Occupational Fraud and Abuse: 2014 Global Fraud Study, 2014.

Ethical Advocate. “Ethics Hotline Benefits,” Ethical Advocate Blog, February 19, 2014.

Ethical Advocate. “Reasons to Use a Third-Party Hotline,” Ethical Advocate Blog, July 9, 2013.

Society for Human Resource Management.  “Ethics Hotline: Why would an employer want to establish a whistleblower or ethics hotline?”  SHRM Q&A web page, April 14, 2014