Saving money is a commendable practice, but not when it comes to whistleblowing. Wait, how do we know? Those who've encountered the question found no satisfying data with all answers. Still, reports on whistleblowing hotlines and importance of compliance exist — we've gathered facts on the frequency of false statements, fraud revelations and even real numbers of financial loss.
Fraud detection - the main purpose of whistleblowing
Employees are primarily interested in reporting on the violation of their rights: unfair dismissal, discrimination and harassment, violations of labour code etc. Employers may be interested in fair business as well, but financial stability is the first priority - how whistleblowing hotlines really help with that?
ACFE Report to The Nations notes that 40% of information on occupational fraud was obtained from tips - both from the companies with and without whistleblowing hotlines. When the hotlines are present, this number increases to 46%. Seems like a good result!
Closer to the target: up to 90% of surveyed countries refer to employees as the main target of the whistleblowing system, and nearly 40% of them think that it's also been done for the clients. Statistics prove these assumptions: more than half of all the tips come from employees and up to 20% from customers. Reports from whistleblowers with no doubts add significant value to external/internal audit and disclosure by accident (may take up to 7% of all chances to initially detect occupational fraud).
It is worth to remember that whistleblowing is not a one-fit-all magic pill: the information from different sources is not contradictive on this topic. Up to 60% of reports don't detect any financial loss. The effectiveness of reports which eventually reveal fraud will depend on the size of the company, its code of conduct and many others.
Not any kind of misconduct causes immediate financial loss, so all the reports should be taken as worthy. Reports on bullying, sexual harassment may signal problems in corporate culture, which, in a long perspective, will cause financial loss.
- Employees are the main source of information on fraud and misconduct
- Telephone lines are the most expensive type of reporting mechanism for the employer, but the most popular among employees
- Every second report from a whistleblower is relevant and well-grounded
Last, but not the least remark - Harvard Business Review informs us that 20% of whistleblower hotlines don't function properly. Take care of your business - no one can report misconduct if whistleblowing systems don't work.
On anonymity - who submits the majority of reports?
There are different ways to organise whistleblowing reports internally and externally: emails, direct report to compliance officers, hotlines, chatbots etc. With no surprise, many companies choose the cheapest way of communication with their employees (sometimes even vendors and competitors, who have the opportunity to submit a report). Most affordable doesn't mean best or effective: still, many companies don't provide their employees with a choice of reporting mechanisms and limit it to email box.
Would you choose to stay anonymous or reveal your identity, if you had to blow the whistle? Fear of retaliation is in top of the reasons why people don't report any misconduct, so anonymity seems to be a safer option. Still, ACFE presents surprising data - only 14% of reports on fraud cases were submitted anonymously.
In contrast, statistics from EQS group state that 58% of reports from whistleblowers (in studied companies and countries) were anonymous - however, later nearly the third of anonymous whistleblowers disclose their identity during the investigation.
There is a big difference in numbers, but there is something we can derive from statistics of anonymous reports:
- The option of anonymity doesn't influence the number of abusive reports
- Only 60% of surveyed companies offer the option of anonymity (EQS Group, 2018)
- Anonymity is more likely to be allowed in big and economically successful companies.
Real cases - how does it go?
The root cause of the problem isn't ineffective regulations and compliance systems, however. It's weak leadership and flawed corporate culture. - Harvard Business Review.
More and more professionals talk about compliance, more companies have implemented compliance systems - where are the results? Why do we hear about corruption and fraud in companies which have taken all the preventing measures? The answer is simple: compliance in these companies exists but doesn't work.
White-collar crime is on the rise and added 19% in 9 years, according to PwC: in 2009, 30% of companies experienced fraud and corruption; in 2018, this number was 49%.
We've already discussed how many corporations actually lose when FCPA finds out about their fraud schemes - millions and billions. Paying bribes seems inevitable - you need to compete with other companies, so if everybody does it, we will do the same.
True, but may cost you a fortune: according to HBR research, firms with poor anticorruption ratings had 5% higher annual sales growth in weakly regulated regions than firms with good ratings did. In contrast, these firms had lower profitability on sales growth in the same regions than their competitors with a good reputation.
As a result, you may win once but lose to your competitors in the long run.
Whistleblowing hotlines, as a part of compliance system, show different results in effectiveness since there are no even two companies alike. A high number of reports do not necessarily point at problems in the company but show trust to the company's compliance system from the employees. Working reporting systems with various types of connection and follow-up ensure that there is the most valuable resource - information - stays within the company.
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Global research - Effectiveness of whistleblowing hotlines by Nicholas Waldron 2012
ACFE Report to the Nations - 2018
EQS Group - Whistleblowing report 2019