A risk-based approach to managing employee fraud and malpractice
Regulatory & Investigations
This article looks at the topic of corporate whistleblowing “hotlines” and sets out three critical factors that companies should always consider when seeking to increase the effectiveness of a whistleblowing system.
Whistleblowing is now a familiar concept for many companies. A whistleblowing hotline for employees to disclose wrongdoing has become the norm for well-managed companies and has long been recognised as an important element of good corporate governance, compliance and risk management. It can act as an early warning system for adverse behaviours and activities that could expose a company to regulatory risks and litigation, as well as helping to identify criminal activity such as fraud, corruption and money laundering.
Nevertheless, despite the benefits of having a whistleblowing hotline for employees, to be effective it must be more than just a platform for employees to raise concerns. Companies need to have in place a process to ensure that information received via the reporting mechanism is properly analysed and actioned accordingly. It needs to be managed confidentially and in such a way that any legal or regulatory obligations or risks are identified and dealt with in a timely and appropriate manner.
Internal policies and procedures, training and governance also need to be aligned, as do investigative activities and any required escalations. More importantly, companies need to foster a genuine speak-up culture and one which continually emphasises the importance of doing “the right thing”. Developing this type of culture is easy to communicate and promote, but is far more difficult to implement successfully in practice.
The following three questions cover important factors that companies often fail to consider when implementing an internal whistleblowing hotline.
If employees believe that their whistleblower report can be traced back to them, this will reduce the propensity for employees to make a report. Even if making a report is perceived as the right thing to do, if employees harbour a fear that they could be identified, and that there is a risk of retribution, the probability of reports being made are very low. Where there is a lack of trust in the levels of confidentiality and anonymity, there is a proportionate reduction in reports made by employees.
Companies need to look at the design of the “hotline” channel itself. For example, a reporting mechanism that requires an employee to leave contact details before a report can be submitted, or an internal reporting system that can only be accessed when a whistleblower is logged into their corporate network, will dissuade employees from making a report. The reporting channel should always provide options that permit anonymity and which only require optional generic identifiers to be included, such as department, office etc.
Additionally, whistleblowing policies and procedures and their associated training, communication and awareness programmes should all emphasise anonymity and confidentiality - this should be continually reinforced on an ongoing basis.
If the answer to this question is “No”, it is highly unlikely that employees will feel confident in using the whistleblowing hotline.
Cases of whistleblowers being victimised, sacked or treated unfairly following the submission of a whistleblowing disclosure are unfortunately commonplace and many high-profile cases feature examples of grievances regarding the subsequent treatment of whistleblowers. There are many examples of whistleblowers having made a career-ending report.
To help counter this, policies and procedures and associated training, communication and awareness programmes should emphasise the measures that are in place to protect whistleblowers. Any legal or regulatory protections that apply within relevant jurisdictions should also be highlighted.
This is a vital point. Employees need to feel that their employer will take disclosures seriously and allocate sufficient resources to investigate it effectively. This will increase the chances of an employee making a report in the first place. Companies should publish data about the volumes of reports received, the number of investigations conducted and high-level outcomes. This data helps encourage trust and transparency.
Where important changes are made as a result of issues or control weaknesses being highlighted by a whistleblower, and it is possible to do so without compromising confidentiality, these should be communicated to staff so that there is further evidence of the importance of whistleblowing and how much value the process can add to a business. Executive level commitment to the process should be continually reinforced to employees to help demonstrate that the entire procedure is properly governed and any disclosures will get the appropriate level of attention.
Reporting metrics should be reviewed by management on an ongoing basis. A fall in whistleblower disclosures can be a good thing but can also indicate that the mechanism isn’t working as effectively as it should.
If the answer to any of the questions above was “No” then it is likely that a company’s whistleblowing hotline will not be trusted by employees and therefore will be less effective. To better understand whether a company’s whistleblowing culture is effective, we recommend using regular staff surveys, annual reviews and anonymous virtual suggestion boxes.
A model which is becoming increasingly popular is the outsourcing of the hotline management to a third party. This has a number of benefits. Using a third party system promotes confidentiality and independent review and the third party can be used to filter disclosures appropriately and identify legal and regulatory issues that require immediate escalation or action.
For more information on how to assess and improve the effectiveness of your whistleblowing hotline, or if you’d like to know more about managed whistleblowing services, please contact any of the authors listed below.