The Association of Certified Fraud Examiners (ACFE) recommends that organizations conduct fraud prevention check-ups to test fraud prevention processes and to identify gaps. The presence of a well-run fraud hotline or help line is a “plus” in the category called “environment-level anti-fraud controls”.

As the ACFE reminds us, “Major frauds usually involve senior members of management who are able to override process-level controls through their high level of authority. Preventing major frauds therefore requires a strong emphasis on creating a workplace environment that promotes ethical behavior, deters wrongdoing and encourages all employees to communicate any known or suspected wrongdoing to the appropriate person.” [ACFE, 2012]

In reviewing environment-level controls, per the ACFE, the question to ask is “to what extent has the organization implemented a process to promote ethical behavior, deter wrongdoing, and facilitate two-way communication on difficult issues?”

Components of such a process include:

• Having a senior member of management who is responsible for the related processes. This may be a full-time position such as a Compliance Officer, or it may be an additional responsibility for another senior manager;
• Having a code of conduct for employees at all levels which gives clear guidance on which behaviors are permitted, which are prohibited, and how employees should seek additional advice and communicate concerns;
• Regular training on related matters for all employees; and
• Communication systems to enable employees to seek advice on ethical matters and to express concern about suspected wrongdoing.

The ACFE describes communication systems as including ethics or compliance help lines (hotlines) that enable employees, and sometimes also vendors, customers, or others, to communicate concerns, and to be able to do so anonymously, if preferred.

Employees are more likely to seek advice and to report misconduct if they believe they work for organizations and for managers with strong commitments to ethics. Given that, employees and others must then be aware of the fraud hotline or other communication systems available to them, and those systems must be easy to use.

For more information about the benefits of third-party hotlines for organizations and employees, see Ethical Advocate’s recent blog post “Reasons to Use a Third-Party Hotline.” Please contact us if you have questions about hotlines, training, or other ethics and compliance solutions.

References:

Association of Certified Fraud Examiners. “ACFE Fraud Prevention Check-up”, 2012. Available from http://www.acfe.com/