Fraud Reporting Is on the Rise

As the global economy continues to drive increased fraud, more people are stepping up to report suspected fraudulent activity within their organizations.

During the first quarter of each year from 2006 through 2009, reporting of fraud-related incidents — corruption, misuse of information, conflicts of interest, and U.S. Foreign Corrupt Practices Act violations —surged from 10.9 percent to 21 percent, according to the 2009 Corporate Governance and Compliance Hotline Benchmarking Report published by The Network Inc. and BDO Consulting. However, a separate report by BDO LLP shows that nine out of 10 larger frauds are not reported to authorities.

The benchmarking report, which provides an analysis of 477,940 reports from 1,328 Fortune 500 and large public and nonprofit organizations, shows that out of all reports received during the five-year period, the majority fall under the category of personnel management. This category encompasses a variety of human resources matters including wages and management interaction and is therefore relevant to all employees. Although the percentage of personnel management allegations have fluctuated by approximately 2 percent each year, the highest percentage — 53 percent — was reported in 2004.

Other key findings highlighted in the report include:

• In 2008, 70 percent of participants surveyed did not notify management of an issue before making a report, and this trend remained steady across all five years of data.
• For each year, the majority of participants remained anonymous when submitting an incident via the hotline.
• Retail trade; service industries; and transportation, communication, and utilities organizations had the highest overall
  fraud-reporting incident rates.
• Seventy-one percent of reports in 2008 warranted an investigation, with 38 percent resulting in corrective action. However, the number of corrective actions taken is a decrease from 2007 and previous years, while the incidents that went uncorrected rose by 12 percent from 2007.
• Hotline posters continue to be the most popular means of caller awareness, but organizations’ intranets are steadily growing in popularity. Brochures remain in last place, representing a source of awareness for between 2 and 4 percent of participants during the five-year period.

Although the U.S. Sarbanes-Oxley Act of 2002 began requiring publicly traded corporations to provide a mechanism for reporting financial irregularities while enabling tipsters to remain anonymous, implementing employee hotlines can be a powerful tool to help any organization stay alert to fraud as well as gather critical feedback.

"It's Never Too Late," featured in the August 2006 issue of Internal Auditor Magazine, details how a Whistleblower Protection Act poster prompted a service-industry employee to consider reporting suspected reimbursement and expense report fraud.

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