Many studies have shown how much an organization can reduce fraud by having an anonymous employee hotline in place. For example, the Association of Certified Fraud Examiners (ACFE) Reports demonstrate that organizations with hotlines experiences half of the fraud dollar impact per incident relative to those organizations that don’t have hotlines in place.

Unfortunately, no organization has done an HR report that is equivalent to the ACFE’s fraud reports, identifying the frequency and cost of employment litigation for those with and without hotlines. However, managing an effective HR hotline should help an organization reduce litigation and there are resources that demonstrate hard cost savings in avoiding employee litigation.

The international law firm, Fulbright and Jaworski, litigation survey is billed as the most extensive survey of its kind. The 2008 respondents indicate that 47% have labor or employment litigation pending. The most common US employment litigation costs are wage and hour disputes, followed by discrimination and privacy. The cost to litigate these suits, excluding settlement, can be substantial, with almost 1/3 of small companies spending between $50,000 – $100,000 and 1/4 of small companies spending more than $100,000. The highest monetary exposure is related to race, sex, and wage and hour discrimination.

For organizations with hotlines in place, there is an opportunity to avoid litigation by conducting a full incident investigation and addressing problems before they escalate. Remarkably, for organizations with multipurpose hotlines, 50% of reports are HR related.

There are also soft cost savings related to improving the organization’s processes.

Evaluating the root cause of hotline incidents can show where there is weakness. Where do ambiguities exist for the management and employees? At a minimum, managers should understand the organization’s policies and legal requirements. Everyone should have training related to the organization’s ethics and policies related to harassment, discrimination, and retaliation. Hotline incident analysis can show an organization where improvements in procedure, training, and policy are required.

Additional soft cost savings accrue in organizations where the HR incident hotline is used as a means to further the goal of building a culture of strong ethics.

Clearly, hotlines that incorporate HR incidents, in addition to tracking fraud and other financial malfeasance, have a higher ROI than those that only cover financial and fraud incidents. While the exact cost savings is up for discussion, it is clear that there are hard and soft benefits to including HR incidents in an organization’s hotline.