Fraud hot lines help ensure whistleblowers come forward

By TOBY BISHOP and DAVE SLOVIN

Today’s federal government includes thousands of organizations and entities that span 3.5 million square miles of American soil, as well as neighboring countries and foreign locales. Unfortunately, government agencies are often vulnerable to unethical schemes such as fraud, waste, bribery and overbilling. Identifying and preventing such behaviors can be challenging. One tool many agencies may be underusing is the fraud hot line.

Recently, the Association of Certified Fraud Examiners, an Austin, Texas-based organization devoted to reducing fraud and white-collar crime, surveyed its members to understand the nature of fraud. The findings, which were published in the organization’s 2004 report, found that at government agencies, 48 percent of fraud cases were uncovered through tips, making tips the leading method for detecting fraud. The same survey also found that organizational losses resulting from fraud and other unethical behaviors were reduced by nearly 60 percent when an anonymous fraud hot line was in place.

Many agencies have hot lines in place, but are they as effective as they could be? There are many best practices agencies should consider to understand how to best address the issue of fraud and the various ways power can be abused:

• Availability. An effective hot line must be available 24 hours a day, 365 days a year. Many organizations operate a hot line by publicizing a number that reaches an individual in administration during the workday, and then is answered by voice mail outside of business hours. This is not ideal, since nearly 50 percent of all hot line calls occur at night or on weekends. The hot line must be available to employees and other stakeholders in different time zones. Someone who wants to remain anonymous may be concerned about leaving a voice recording and may hang up, or leave a message that is so short and vague that you cannot investigate, such as, “The supervisor is taking kickbacks.”
• Interactive interviews. Since the purpose of the hot line is to gather enough information to support an investigation, there is no substitute for a robust interview. The interview needs to be detailed and tailored to the type of concern being reported. For example, the line of questioning necessary to properly document a rigged bid process will differ greatly from the appropriate questions for a case of overbilling.
• Internal versus third-party operation. The American Institute of Certified Public Accountants issued guidance in January on evaluating the effectiveness of a hot line. One of the points discussed in their guidance was that using a third party to operate the hot line can improve the perception of confidentiality. Consider outsourcing as an economical alternative to providing 24/7 operations internally.
• Consolidate hot lines. Many agencies have hot lines in place for reporting a variety of issues. This can be confusing and frustrating for concerned parties who call one number only to find they are referred to another number. If one number is used for reporting all types of illegal and unethical behavior, reports can be sent to the appropriate parties after the call. Simplifying the process for coming forward could be the most important enhancement you could make.
• Report dissemination. To ensure allegations reach the right people, hot line incident reports should be automatically, rapidly and discreetly routed to one responsible individual or numerous recipients. Decisions regarding report distribution should be made in the planning stages as part of the program, so that reports are consistently delivered into the right hands without filtering by managers.
• Program launch communication. Like any new initiative, a hot line’s impact will be determined by good communication. Initial communication should be positive and include an announcement by top agency officials to show they support the program. Employees, suppliers and other key groups should be assured that the hot line is confidential, and encouraged to come forward to stop unethical activities.Disrupting fraud may appear a daunting task, but improving the effectiveness of a fraud hot line is an important step in the right direction.

Toby Bishop is president and chief executive officer of the Association of Certified Fraud Examiners. Dave Slovin is the vice president of business development at The Network, a company based in Norcross, Ga., that operates confidential hot lines.