Certain organization are required to have some form of ethics reporting system:
- Publicly-traded companies: Section 301(4) of the Sarbanes-Oxley Act (“SOX”) requires procedures for the anonymous collection of employee complaints covering an extremely broad range of financial and accounting control issues.
- Not-for-profit companies: Form 990 requires specific disclosure under “Governance, Management, and Disclosures” whether your nonprofit has adopted a written whistleblower policy. See our separate article here.
The Benefits Of Doing This Correctly
The cost of not having a means of independently collecting complaints can vastly outpace whatever cost savings might have been achieved by handling this function internally (or not at all). In its 2018 report, the Association of Certified Fraud Examiners reported the following statistics:
- 40% of fraud is initially detected by tips, 53% of which were reported by employees.
- Internal control weaknesses were responsible for 49% of frauds
- Fraud schemes lasted a median of 16 months; the longer a fraud scheme lasted, the more losses it caused
- Entities without whistleblower systems lost twice as much, $200,000 per fraud scheme, as companies with whistleblower systems, which lost $100,000 per fraud scheme
- Small businesses lost almost twice as much, $200,000 per fraud scheme, versus large companies, which lost $104,000 per fraud scheme
- 53% of fraud victims recovered nothing, and only 15% recovered all losses
The American Institute of Certified Public Accountants (AICPA) recommends that all organizations implement some form of ethics reporting system. Ethics reporting systems allow employees, customers and suppliers to report improper conduct anonymously and without fear of retaliation. It is an invaluable tool for early detection and prevention of unethical behavior.
Ethics reporting systems are an efficient tool to incorporate into your company’s governance. However, if they are not carefully implemented, they can be useless and potentially detrimental. Fulcrum can help you avoid the following common pitfalls:
- Internal ethics reporting solutions (when either collecting or investigating complaints) provide an unacceptably high risk of encouraging retaliation claims. Any money you might have saved by using your internal resources is immediately lost when you received the first retaliation claim.
- By relying on a single collection vehicle (phones), “hotline” services provide an incomplete and mechanical solution that constrains communications from your potential complainants.
- By using inflexible and overly simplistic scripts/forms, most outside vendors fail to collect important information that would assist in your internal investigations.
- By using unskilled personnel to collect the complaints, uninformed or prank calls waste investigation resources, rather than being quickly identified for what they are.
Why We Are Better
Fulcrum uses trained forensic accountants to provide a unique and creative approach to handling complaints. Fulcrum’s solution includes convenient submission via multiple avenues, including phone, email and web-based portals. Hotline and internet-based companies cannot match Fulcrum’s ability to:
- Gather enough relevant information to ensure that your internal investigations and other follow-up are complete and efficient;
- Provide a complete and customized solution, rather than simply turning the problem over to you;
- Quickly identify uninformed or prank complaints.
- Fulcrum does not operate under a term-limited service contract
Fulcrum’s solution has every feature one would realistically need-here’s a list of the benefits of Fulcrum’s service. Fulcrum’s service generally costs $900 annually. Most other whistleblower solutions cost significantly more, both initially and in the long-run.