The Benefits of Establishing a Fraud Hotline

The 2012 U.S. Fraud Examiners Manual provides many recommendations for establishing a fraud hotline as a tool for preventing billing schemes and other fraud schemes. It encourages companies to study the feasibility of installing a fraud hotline to provide a forum for complaints and tips from employees and outsiders.

In addition, Sarbanes-Oxley requires audit committees to establish procedures for receiving and dealing with complaints and anonymous employee tips regarding irregularities in the company’s accounting methods, internal controls or auditing matters.

The most recent fraud study reported that only 15 percent of small businesses had a hotline in place, compared to 64 percent of larger organizations. The median loss for frauds at companies with hotlines was 59 percent smaller than the median loss for frauds at organizations without them.

When establishing a hotline, employees should be instructed on where to report suspicious, unethical or illegal behavior. Other steps recommended are establishing a self-disclosure policy by outlining procedures for reporting law violations to appropriate authorities. In addition, a records retention policy should be implemented.

A code of conduct and conflict of interest policy might include a certification statement signed by the employee agreeing to disclose information to the company’s hotline that might reasonably appear to be a violation of the company’s policies and procedures.

Implementing a fraud hotline is highly recommended by the 2012 U.S. Fraud Examiners Manual because of the deterrent that it can be in organizations.

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Todd has more than 20 years of experience providing client solutions in consulting, accounting and tax matters. He has performed business valuations for a variety of purposes, including gift and estate tax, business planning, succession planning and for solvency purposes in bankruptcy. Todd is experienced in providing expert testimony, and his assistance with litigation matters includes reconstruction of financial records, tracing of transactions, damages analysis and valuations related to shareholder disputes and solvency analysis in bankruptcy and for marital dissolution.

Todd Burchett – who has written posts on BKD Forensics.


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