“Frauds are much more likely to be detected by tips than by any other method.” ~ACFE

Whether they are called fraud hotlines, ethics lines, or employee hotlines, these tools provide a return on investment (ROI) through increased detection of fraud, increased recovery of fraudulent losses, and positive effects on organizational reputation and employee morale.

Occupational fraud is a global problem, affecting all organizations and posing an especially significant threat to small businesses.  How big is the problem?  Here are some global estimates:

5% – amount of revenue the typical organization loses to occupational fraud each year;

20% – percent of frauds causing at least $1 million in losses;

40-50% – percent of victim organizations that recover none of the fraud-related losses;

18 months – median length of time to detect fraud.

These estimates represent just some of the disturbing facts contained in the Association of Certified Fraud Examiners’ (ACFE’s) sixth biennial Report to the Nations on Occupational Fraud and Abuse, released last year and based on an analysis of 1,388 fraud cases investigated worldwide.  Occupational fraud causes not only financial losses, but also losses to an organization’s reputation among the public and among its own employees.

While occupational fraud cannot be eliminated, proper controls can significantly decrease its prevalence and impact.  The 2012 ACFE study, like its predecessors, highlights the importance of anti-fraud control processes in reducing fraud losses.  Consider the following estimates:

45% – reduction in median fraud losses when anti-fraud controls are in place;

43% – contribution of “tips” to the initial detection of fraud.

The ACFE study reports that the presence of anti-fraud controls significantly decreases in the cost and duration of occupational fraud schemes.  The study also highlights the importance of tips: “occupational fraud is more likely to be detected by a tip than by any other method.” The 2012 report shows that the initial detection of occupational fraud came from tips just over 43% of the time, compared to just under 15% of the time from the next highest category, management review.

Fraud hotlines are an excellent mechanism for providing employees and other individuals a means to report suspicious activity, especially when set up to allow for anonymity and confidentiality. Your investment in an employee hotline process through Ethical Advocate or other provider will deliver an ROI through increased detection of fraud, increased recovery of losses resulting from fraud, and positive effects on organizational reputation and employee morale.