Thursday, August 1, 2013

Tip Lines Improve Fraud Prevention

by Gary Snyder

Internal whistleblower hotlines would lead to improvements in preventing fraud with tip hotlines one of the most effective tools organizations possess for detecting and preventing fraud according to the AICPA’s 2011 Forensic and Valuation Services Trend Survey

Tip lines encourage and facilitate anonymous reporting, they are a proven fraud deterrent that can be successfully implemented without burdensome effort or expense. 

An article in the Journal of Accountancy lays out a path for maintaining a tip line, including key features and best practices learned by public companies. It concludes with a description of different levels of service provided by web-based tip line providers, including features and estimated costs.

Tip line design or contracting requires thoughtful planning and consideration of company operations. Does the company require multilingual services or 24-hour access 365 days per year? The following characteristics are key considerations in tip line implementation, monitoring, and governance:
Tip input. The input process must serve the needs of employees, customers, suppliers, and other stakeholders. Tip lines can accept input by mail, email, web-based systems, and fax; in person; and via toll-free operators.
Anonymity. Anonymity and continued confidentiality are critical tip line features. Just over 50% of tips come from employees. Any risk of identity disclosure could negatively affect employees’ willingness to report.
Availability. Tip lines are generally available 365 days per year, 7 days per week, and 24 hours per day. If a company operates globally, around-the-clock access is a necessity.
Multilingual. Multilingual capability is necessary for employees as well as customers, vendors, and others.
Case management. Case management functions allow the company to track a report from initiation through resolution. Lack of follow-up can increase vulnerability in the event of prosecution. Case management systems allow online access to filings; assignment of the case to the appropriate person for follow-up; assignment of priority level; actions taken and resolution; report generation; file attachment; and anonymous follow-up dialogue with the complainant for additional information.
Compliance monitoring. A corporate governance policy requires monitoring to be effective. A tip line system is effective only if tips are correctly captured, reported to the appropriate individuals, and followed up. Some tip line providers offer compliance monitoring in concert with international privacy and reporting requirements.
Internal control review. As part of a periodic review of internal control procedures, finance staff should be asked directly whether they are aware of any irregularities. The pressure of going “on the record” personally, and perhaps abiding by professional ethics, frequently elicits honest responses.
Employee awareness. Implementation of a tip line requires periodic employee training to introduce and promote its use.
Organizational placement. It is critical that the tip line be operated by an area independent of finance. Publicly held companies have a compliance officer or an internal audit department. In the absence of these departments, human resources should operate the tip line.
Responsibility for follow-up. Tracking the entry of tips, assignment of responsibility, status of investigations, and outcomes is a critical and often expensive task. Tips that are not acted upon can signal the lack of a bona fide commitment to ethics on the company’s part. Incident reporting should include the member of the board of directors tasked with monitoring security and controls. Roles and responsibilities for reporting and follow-up of internal control issues should be part of standard board reporting. Tips on material issues should receive an escalated response that immediately alerts the chairman of the board.
Audit trail. A well-documented audit trail is key to a successful defense in court and to maintaining accountability. Companies need to document the sequence of events taken in response to a tip, including dated documentation, assigned responsibility, actions taken, and final resolution.

Nonprofit Imperative gathers its information principally from public documents...some of which are directly quoted. Virtually all cited are in some phase of criminal proceedings; some have not been charged, however. Cites in various media: Featured in print, broadcast, and online media outlets, including: Charity Navigator, Vermont Public Radio, Miami Herald, National Public Radio (NPR), Huffington Post, The Sun News, Atlanta Journal Constitution, Wall Street Journal (Profile, News and Photos), “Betrayal”, (a movie), NBC (on Charity Fraud…TBD), FOX2, ABC Spotlight on the News, WWJ Radio, Marie Claire, Ethics World, Aspen Philanthropy Newsletter, Harvard Business Review, Current Affairs, Charity Navigator, The Chronicle of Philanthropy, St. Petersburg Times, Board Room Insider, USA Today Topics, Accountants News,, Responsive Philanthropy Magazine, New York Times, Portfolio Magazine, The Virgin Islands Daily News, NANKAI (China) BUSINESS REVIEW, National Religious Broadcasters newsletter, The Charity Governance Blog, American Chronicle, Palm Beach Post, Detroit Free Press, Oakland Press, Nonprofit World, Socially Responsible Business Forum, PNNOnline, Ohio Nonprofit Resources, Nonprofit Good Practice Guide, Nonprofit Startup Guide, Nonprofit Blog, National Coalition of Homeless Newsletter, Finance and Administration Roundtable Newsletter,, CORP! Magazine, Crain’s Michigan Nonprofit,, PhilanTopic, Nashville Free Press, Nonprofit Law Blog, Seniors World Chronicle, Carnegie Reporter, Assoc. of Certified Fraud Examiners Examiner,, Worchester (MA) Telegram and Gazette, Carnegie Corporation of America, EO Tax Journal, Wikipedia: Non-profit Organizations; Parent: Wise Austin, Accountants News, Veterans Today,, Far-roundtable, #Nonprofit Report, nonprofithelpnews, nonprofit news; National Enquirer, Northwest Herald, The HelpWise Daily, The #Nonprofit Report, Wikipedia (Nonprofit Organization),, Nonprofits: On the Brink (2006) Silence: The Impending Threat to the Charitable Sector (2011)
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