Tip Hotlines Are Effective in Preventing, Detecting Employee Fraud

Most occupational frauds are discovered by an anonymous tip, experts say, and fraud reporting mechanisms such as hotlines are encouraged as effective means of uncovering and discouraging employee fraud.

The Association of Certified Fraud Examiners (ACFE) recommends that hotlines should be able to receive tips from internal sources as well as from those outside the organization. The person calling should be assured that their comments are anonymous and confidential, and will be listened to. It is also helpful if they are monitored by a third party organization.

“This is vitally important in an organization, that if you’re trying to prevent fraud that you do have a strong hotline, tip line, and that it is responded to appropriately,” said Mark Lowers, president of the Purcellville, Va.-based international risk management firm, Lowers & Associates.

“Most often the first call that comes into a tip line … is a test,” he said. “You’re not going to get great information. The caller is really testing to see if they are going to pay any attention to this. … It’s not until the second or third call that you’re really going to get any information.”

Organizations that have anti-fraud training programs in place generally experience lower losses and less lengthy frauds, according to the ACFE. The association recommends that employees, management and executives alike be trained to recognize fraudulent actions and educated on how to report questionable activity.