Indifference to Ethical Business Conduct is Death for Organizations

FROM THE PRESIDENT

James D. Ratley, CFE
ACFE President

In my decades of anti-fraud work I've learned more things than I've taught. Here's one important nugget: Organizations should encourage whistleblowers. (At the ACFE, we like to call them sentinels.) As in years past, the 2016 Report to the Nations says the most common detection method still is tips.

In Fraud Magazine's latest cover article, Top 10 factors leading to hotline distrust: Understanding why no one calls, authors Ryan Hubbs and Julia Kniesche write that whistleblowers have always been subject to false allegations, retribution from management and even dismissal.

I've met few whistleblowers who weren't targets of their organizations after they bravely stepped up to the plate. (Just read the stories of Tony Menendez and James Holzrichter.)

Hubbs and Kniesche write that employees often ignore company hotlines because they witness top management's indifference to ethical business conduct. "When employees see management retaliating against would-be whistleblowers, the message at the operational level is clear: Mind your own business, don't ask questions and keep your head down if you want to keep your job," they write.

That attitude is death for organizations. "An ethics hotline reporting system becomes meaningless when employees can't trust that local management will take appropriate action," say the authors.

Some of the factors that lead to ineffective hotlines, they share, include neglecting to train hotline workers well; management that interferes; employees who don't understand the systems; inadequate resources and poor program designs; and retaliation against whistleblowers.

Sometimes, organizations begrudgingly begin hotlines because of stipulations in the U.S. Sarbanes-Oxley Act and the Dodd-Frank Act, or European Union directives.

However, the organizations that see the best hotline results initiate them because they know they'll encourage strong internal cultures and revive flagging morale. As the authors write, employees' lack of trust in the reporting process can create unhealthy work environments, and eventually result in employment lawsuits, legal and regulatory actions, loss of assets, external whistleblower complaints, poor customer perception or brand reputation, and high employee-turnover costs.

Hubbs and Kniesche write that most employees want to do the right thing, and organizations need to do what they can to help support and encourage employees to report. "Failures in employee reporting today can result in significant operational and reputational hurdles tomorrow," they explain. They encourage you to follow their tips to strengthen your reporting program so no top executive ever has to ask the question, "What went wrong?"