Most business leaders, anti-fraud and compliance specialists, and HR professionals understand financial fraud is not just a concern, but a genuine threat to their bottom line. But the true scale of the problem is so vast that few may recognize just how widespread—and how damaging—fraud truly is. A recent report issued by the Association of Certified Fraud Examiners (ACFE) stated flatly that “occupational fraud is very likely the largest and most costly form of financial crime in the world.” Even more alarmingly, the report estimates that annual losses from fraud are estimated to be measured in the trillions of dollars.
That shocking figure makes the additional information found in the report regarding the role of whistleblowers in combating fraud even more intriguing. According to ACFE, whistleblowers are perhaps the single most important weapon in the ongoing fight against fraud. The report finds that more than 40% of known fraud is uncovered thanks to whistleblower tips and information. For HR leaders and executive decision-makers everywhere, that information has profound implications.
In this context, it seems clear that receiving, managing, and responding to whistleblower information about potential fraud is one of the most important and impactful things that HR professionals can do. HR professionals should be informed and engaged when it comes to knowing how to create a comprehensive whistleblower plan, establish and manage a reporting system for whistleblower tips, and review and take appropriate investigative action (when warranted) on those tips. All those priorities should be undertaken with a thorough understanding of not only accepted best practices but also all relevant legal and regulatory guidelines.
Here’s how to make that happen:
Recognize the extent of the problem
It is nearly impossible to build the kind of whistleblower program required to effectively and responsibly gather, manage, and respond to whistleblower tips without first understanding two things: the scale/scope of the threats posed by fraudulent activity and your own company’s exposure to those threats. Unfortunately, the rudimentary protective measures implemented by many businesses are not adequately protective, and whistleblower management systems—which should be one of the central pillars of anti-fraud action—are often lacking or even entirely absent. As referenced above, the damage caused by fraud is almost literally incalculable. And it is far more widespread than some might realize. Fraud can be found in every industry but is especially prevalent in manufacturing, healthcare, financial institutions, and government/public administration.
Common Shortcomings
The lack of a whistleblower reporting system (or effective response process) is a big red flag when it comes to anti-fraud actions. However, HR professionals need to be aware that even those businesses and institutions with a whistleblower program in place are often hamstrung by common flaws and shortcomings in that program. In some cases, a system might be inactive or underused for several different reasons, Employees might not be aware that the system exists or might not feel safe using it due to concerns about anonymity. Some companies suffer from a general lack of education and training regarding whistleblower rights and protections—something that should be standard from C-suite executives down to entry-level employees. Another all-too-common error is a reporting system that is not paired with a timely and effective review and response process. The best information in the world is useless if it isn’t investigated, verified, and acted upon.
Create a Reliable System for Tips and Information
As part of an effective whistleblower program, a strong whistleblower reporting infrastructure is the essential foundation of an effective fraud response program. HR professionals should ensure that any existing system is one that whistleblowers feel safe and comfortable utilizing. The reporting system should prioritize anonymity and ease of use and should be modernized and digital (no phone lines or voicemails). When conducting a review of an existing system, do not make the mistake of interpreting a lack of whistleblower tips as a good thing—it is more likely to be indicative of a flawed system than a fraud-free environment.
Identify a Security Partner
Because building an effective reporting system is just the first step in a whistleblower program, HR professionals and executive decision-makers would be wise to consult with trained corporate security experts. The right security partner can not only evaluate and improve existing systems (or help build one from the ground up), but they can also be instrumental in developing and managing tip review and investigative follow-up. Managing those processes internally is almost always doomed to failure, both because of a lack of formal investigative training and because of the potential for conflicts of interest or a lack of objectivity that can occur when whistleblower tips involve fellow employees or company leaders.
Establish a Robust Review Process and Investigative Capabilities
Leveraging whistleblower reports effectively and responsibly requires a comprehensive and efficient review process to evaluate incoming tips and respond accordingly. That process should consider all variables involved, including insight into any named individuals implicated in the allegation and the nature of the alleged fraud. It should also account for regulatory restrictions and company-specific dynamics and consider how those elements might impact a formal investigation. For obvious reasons, HR professionals and security experts are natural collaborators at this stage of the process. A security partner will move forward, informed by additional data gathered through resources like open-source databases, discrete field work, public records research, and carefully sourced inquiries.
If the determination is made that a more robust investigation is warranted, the security team with demonstrated investigative experience and specialized expertise in hands-on investigation can move forward with some or all the following steps:
● Creating a comprehensive profile of all individuals and institutions that may be involved, highlighting any relevant connections between those parties.
● Gathering and conducting a detailed review of all documentary evidence, a process that may require computer forensics for digital records and forensic accounting to reconstruct potentially relevant transactions.
● Conduct any needed additional investigative fieldwork, which may include in-person interviews with targets of the investigation, as well as with potential witnesses/sources of information.
Given the scale of the threat posed by widespread fraud and the pivotal role that whistleblowers play in uncovering that fraud, HR leaders and anti-fraud experts should be proactive in working with their security partners to cultivate and leverage this invaluable anti-fraud resource. Embracing the best practices outlined above is the first step in a process that can make a meaningful and even dramatic bottom-line difference.
Sandra Saadi is a Senior Manager with Pinkerton’s Global Investigations Unit in London. A risk management expert with special expertise in corporate investigations, financial crime prevention, enhanced due diligence, litigation support and reputational risk assessment, Sandra has nearly a decade of experience in corporate security and investigation. She has served as a committee member at Transparency International Professional Support Network (TIPS), volunteering her time to support the organization’s work in fighting corruption across the UK.