David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs and forensic accounting services in Philadelphia and the Delaware Valley.
In last week’s blog, Certified Fraud Examiner David Anderson reported that tips remain the most frequent source for the discovery of fraud, explaining companies using tip lines – either telephonic or online – were generally able to reduce the length and duration of frauds.
However, some companies report tip lines have either been ineffective or are largely unused. Why is this? Based upon Anderson’s experience as well as that of his colleagues, four main reasons have been identified:
Lack of Adequate Communication and Employee Training:
In one instance, Anderson said he discovered the client’s approach to utilizing a tip line was to send an e-mail to all employees advising them that a tip line had been put in place, and then putting up posters throughout the workplace to inform them of the tip line number. While this may have seemed adequate, employees had many questions that went unanswered.
When Anderson conducted a survey of employees regarding the tip line, many had no idea their tips would be anonymous; no idea of how the investigation of their tips would work; and no idea of how they would be informed of the results of the investigation. After instituting employee training and frequent communication regarding the tip line (including adding a FAQ section on the company’s intranet), use of the tip line increased.
Improper Investigation of Tips:
Addressing such issues as who is assigned to conduct the investigation and how it is reported, Anderson said, can be keys to the success of a tip line.
In one instance, he was brought into a company to analyze why their tip line wasn’t been used by employees. One of the key things he learned, Anderson said, was that rather than using an outside forensic professional to investigate the tips, the company assigned the task to a junior human resources manager. The manager’s primary method of investigation was to immediately confront the target of the tip with the accusation contained in the tip. He reported that not a single target acknowledged the alleged fraud. He would then prepare a report, and since the targets denied the fraud, he would close out each case as being unsupported.
In another instance, the company would assign the head of a department to investigate the alleged fraud in the department. When the head of purchasing was assigned to investigate his own mentee for alleged fraud, he found that no fraud had occurred (without, Anderson said, actually conducting an investigation). In both of these instances, employees who reported fraud through the tip line grew discouraged when nothing was done about the fraud. This, in turn, contributed to their reluctance to use the tip line in the future. Companies who use properly trained outside forensic professionals to investigate the frauds find that employees are more willing to use their tip lines.
Real or Imagined Retaliation:
In the case of the aforementioned head of purchasing who was charged with investigating alleged fraud of his mentee, the department head was aware that his mentee had been feuding with another employee. He guessed (correctly as it turned out, Anderson said) that this other employee had reported the fraud. He then began a campaign to terminate the reporting employee. After this employee was terminated, rumors circulated that the departed employee had been terminated because she reported fraud on the company’s tip line. This had a chilling effect on other employees who then became extremely reluctant to report suspected fraud. If employees perceive that reporting on the tip line is not truly anonymous and/or that they might face retaliation, the tip line will fail.
Failure to Follow-Up with The Tipster:
There needs to be a mechanism to keep the tipster informed, first, that the investigation is ongoing (until it is resolved); and, second, to provide the employee with a general answer concerning the final outcome.
“Based upon your tip,” Anderson suggested this potential conversation could go, “we investigated, found it to be credible, and have taken visible (the specifics revealed depend upon advice from counsel) steps to resolve the fraud” or “We investigated and found no support or insufficient support to take action (the detailed reasons revealed depend upon advice from counsel).”
Without this type of information flow, the tipster may be left guessing as to whether anyone is investigating their allegation, and whether or not it is worth reporting suspected fraud.
It’s not just enough to implement a tip line to fight fraud. Companies must make sure that they are adequately training and educating employees about the tip line; assigning properly trained outside professionals to investigate tips; preventing potential or actual retaliation for tip reporting; and keeping the tipsters informed as to the progress of the investigation.
If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at firstname.lastname@example.org.
About David Anderson & Associates
David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.
NOTE: David Anderson’s blog will be on hiatus next week for the holidays, but will return on Monday, January 2, 2017