Whistleblowing – how effective is it really in fighting occupational fraud?

Occupational fraud is likely the largest and most prevalent threat to businesses without many of them realising it. Occupational fraud is fraud committed from within against the business by its own officers, directors, or employees. Businesses are so focused on operations and profit that they neglect to address and implement policies and procedures to identify and address occupational fraud.

The extent of this problem is clearly emphasized by the recent State of the Nations report released by the ACFE where the following statistics were confirmed:

  • More than $7 billion in losses annually
  • More than $1 million of losses in 22% of identified schemes
  • Average duration of fraud scheme is 16 months before detected
  • Corruption is the most common scheme in every region
  • Small businesses lost almost twice as much as bigger ones
  • Tipoffs/whistleblowing is the biggest reason for detection – 40%

From this report it is clear that an effective whistleblowing programme is the most effective way to detect occupational fraud. The next initiative after a whistleblowing programme is internal audits through which 15% of occupational fraud is identified. This is 25% less successful than a whistleblowing solution. According to the report, “Whistleblowing is central to … constitutional principles. It is key in the fight against corruption and mismanagement, especially of public funds, and to strengthening transparency and accountability within organisations and society more generally”.

Why should a business have a hotline / reporting programme or solution?

  • It is central to constitutional principles
  • It is key in the fight against corruption and mismanagement
  • It is an integral part of company regulatory compliance or ethics program
  • According to ACFE, 40% of all internal fraud tips come through a hotline / reporting channel
  • According to an ACFE survey, companies lose at least 5% of annual turnover due to fraud, corruption and dishonesty
  • It encourages a transparent culture
  • It is an effective tool to mitigate risks prior to, during and after
  • It increased employee satisfaction due to emphasis on safety and integrity
  • It increased productivity with more time spent on constructive efforts
  • It protects the organisation (fines, negative publicity, law suits etc) and its employees (showing a culture of investing and caring for them)

The following are elements of an effective whistleblowing hotline:

  • Hotline as an integral part of company’s corporate compliance and ethics program
  • Anonymity and confidentiality
  • No retaliation
  • Positive “tone from the top approach”
  • Educate, publicize and make hotline available to all role-players
  • Multiple uses for hotline, including a helpline
  • Record and analyze statistics
  • Hotline managed by third-party provider
  • Evaluate, test and audit

When assessing an organisation’s fraud risks and designing anti-fraud controls, it is important to remember that fraudsters typically act when an opportunity arises. One of the most growing phenomena that we are currently investigating is ghost employees. Millions are stolen yearly by employees creating and paying ghost employees. This problem is easy to identify and address by applying a few basic verification checks. As mentioned above the biggest detection of white-collar crime is done by means of whistleblowing or tipoffs.

Current whistleblowing legislation in South Africa, The Protected Disclosures Act 26 of 2000, only requires listed companies to have some sort of whistleblowing solution with no real guidelines. Due to the “toothless” nature of this Act, most listed companies create an internal solution that is not really conducive to the spirit of whistleblowing. Adhering to this requirement is more seen as ticking a box than creating it for a solution.

Occupational fraud is a reality in South Africa and research has found that losses vary from an average of 5% in corporates to almost 20% in SME’s. All businesses need to realise and understand the value of a reputable whistleblowing solution. The utilisation of a good whistleblowing solution should not be enforced by any Act, it should form part of the business culture and responsibility in their support to eradicate occupational fraud and corruption.

Using the latest technology, XTND has created a simple and inexpensive whistleblowing App – ExposeIT. This app is not your traditional call centre tipoff line, but rather is based on technology and can be tailored for any business.

Click to learn more about our ExposeIT Whistleblowing App