Benchmarking Your Employee Reporting and Fraud Hotlines

How well do you follow what's happening on your employee hotlines?

That was the subject of a new report issued by the CSO Executive Council, together with The Network and the Association of Certified Fraud Examiners. The group released this month the 2006 Corporate Governance and Compliance Hotline Benchmarking Report, which sought to give an analytical view on how hotlines are being used and managed in the corporate community.

The benchmarks are based on data released by 500 businesses and organizations over the last four years, totaling some 200,000 incident reports given to hotlines and helplines. The CSO Executive Council, led by managing director Bob Hayes, coordinated the review of the data, which was submitted anonymously by affiliated companies.

Notably, the council quoted in the report's executive summary, the following statistics:

- For those reports where case outcome was provided, the majority of reports (65%) were serious enough to warrant an investigation and 46% resulted in corrective action taken.

- 71% of participants do not notify management of an issue before making a report.

- One of the most surprising findings was that participant reporting corruption and fraud incidents were less likely to remain anonymous than any other incident category. They remained anonymous only 36% of the time.

- The research showed that the majority of reports received pertain to personnel management incidents (51%). Beyond the personnel management category, company/professional code violations (16%), employment law violation (11%) and corruption and fraud (10%) are the most commonly reported incidents regardless of industry.

- 54% of reports were made anonymously.

- The largest percentage of participants (39%) acknowledged awareness of a hotline through a poster or a sign.

- Overall, an average of 14.9 incidents are reported per 1,000 employees.

- Smaller organizations (those with less than 5,000 employees) receive an average of 21.8 incidents reported per 1,000 employees. In contrast, organizations with an employee count between 10,000 and 19,999 receive an average of 13.6 incidents reported per 1,000 employees. Those organizations with more than 50,000 employees receive an average of 14.3 incidents reported per 1,000 employees.

According to the study's authors, the percentages, though small, should be considered along with the serious nature of incidents being reported, and that, notes the study's authors, "illustrates the importance of a confidential reporting mechanism."

Indeed, the report sheds light on how fraud examiners should be watching their business. Finance, insurance and real estate firms, for example, were the most likely businesses to see a report of corruption and fraud, while agriculture, forestry and fishing industries were leading the way in incidents reported regarding improper interaction with customers and/or competitors.

The data also showed that working through management channels wasn't always the best method of reporting incidents. Of the employees who reported an incident to management before they ever made the call to the hotline, some two-thirds still chose to remain anonymous. The report notes that one possible reason for this behavior may be that "the person making the report did not want their manager to find out that the issue had been escalated." Still, most employees never report an incident to their manager before making a report on a company hotline, in fact, for most businesses, less than 30 percent of hotline reports had previously been made directly to management.

Copies of the 36-page report can be obtained through the CSO Executive Council, or by calling toll free (888) 814-9770.