IMGCAP(1)]Forward-thinking organizations are increasingly implementing hotlines. But because this best practice is so new to most, few know how to successfully do so. This article provides practical insights on doing so, including how to gain support from those who are resistant to change.
Organizations ranging from the American Institute of CPAs to the Society of Human Resources Management have published articles on the importance of hotlines.
The Association of Certified Fraud Examiners has favored hotlines for many years, going so far as to say in their 2012 Report to the Nations, “Managers and owners .should focus their anti-fraud efforts on the most cost-effective control mechanisms, such as hotlines ”
Features and Functionality
The first step is to identify which features are important to your organization. Features to consider include:
- Internal vs. Third Party Operation Internal operation may have a lower cost. External operation may provide case management functionality and encourage and empower individuals who are nervous about speaking up, particularly if anonymity is offered.
- Reporting Mechanisms A toll-free number, fax, website, e-mail address and regular mailing address allow concerned parties multiple options for disclosing concerns and sharing evidence.
- Live Operators Operators can guide parties, who are often emotional, through a coherent and complete report. Recorded calls, including automated voice-mail boxes, may be available at a lower cost but may also discourage reporters, who fear being recognized.
- Multilingual Capability While English and Spanish cover the first or second language of nearly all U.S. residents, some may have a need for additional languages.
- Follow-up Mechanisms Such mechanisms allow reporters to share new information or obtain updates.
- Distribution Protocols Proper protocols ensure reports do not fall into the wrong hands.
- Comprehensive Coverage Organizations need to allow disclosure of not only financial concerns but also safety and HR matters.
- Educational Materials These can create initial knowledge and systematic on-going awareness.
Effective implementation is important. According to Lee Beall, CEO of Ohio based Rea & Associates CPAs, the addition of client hotlines has resulted in almost immediate results for his clients, including detection of perceived religious discrimination, email security issues, redirection of vendor rebates and improper use of customer discounts. In every case the client was immediately notified, resulting in corrective action.
Internal Considerations
Once a hotline source has been identified, internal guidelines must be determined, including:
- Report distribution (Consideration I) At least two parties should be notified of each report. This protects the organization in case one of the two receiving the report is unknowingly also part of the problem. This also helps in case one of the two simply fails to take action.
- Report distribution (Consideration II) Before an issue is uncovered, have a plan for who is to be notified. Depending on the nature of the concern, it may be appropriate to notify accounting, HR, the board, internal audit, IT and/or legal counsel.
- Policies Be sure that policies clearly state that retribution will not be permitted on reports submitted in good faith, whether they turn out to be accurate or not. This will encourage honest but fearful employees.
Employee Support
Steps must also be taken to gain employee buy-in and trust. A common fear of management is that a deluge of reports and/or fictitious reports will be received. In reality, the opposite is true. It takes time for employees to realize the hotline is not a “program of the day” and, once they do, reports tend to be meaningful and truthful. Steps to take include:
- Anonymity If there is true anonymity, make employees aware that calls and IP addresses are not tracked.
- Tone at the Top An executive level member of management should reveal the program. Employees are more likely to recognize the hotline’s importance when this is done.
- Common Good Employees should recognize that the hotline is for the common good and not a case of “Big Brother” watching.
- Recognition of Results Success stories should be shared, particularly where employees and their jobs were protected.
- Open Doors Most organizations have “open door” policies, but employees are often reluctant to enter those doors. Nevertheless, remind employees that they can still directly approach management.
- Chain of Command Let employees know how reports are channeled once they occur. This removes any mystery from the hotline and provides clarity to reporters.
- Awareness Keep the hotline top of mind through features such as training, posters, wallet cards, newsletters and the like.
Nick Lynch, CPA/CFF, CFE, manager of forensic accounting and litigation support at Kentucky-based CPA firm Dean Dorton Allen Ford PLLC, sums it up this way, “Transparency and the support of upper management are critical to the success of an ethics hotline. It is imperative that employees have a positive perception of the program and understand that it is also for their protection.”
Overcoming Inaction
Perhaps the biggest challenge that forward-thinking managers will face is getting other members of management on board for being proactive. Here are the facts that management must understand:
- Detection A hotline will catch problems ranging from theft to safety violations to HR violations. Unlike expensive insurances that may never be used, the savings from catching one problem may offset the cost of a hotline for decades.
- Deterrence A clearly communicated program prevents problems from occurring. A bank guard is being effective even when the bank is not being robbed.
- Insurance A hotline can help to avoid costly governmental fines and to discredit fictitious and/or malicious employee lawsuits.
- Protection Employees are a key asset. A hotline demonstrates that their best interests are important to management.
- Reputation It takes just one bad apple to spoil the bunch. The short-term actions of a few can destroy the lifetime efforts of the many. In the world of accounting, one needs to look no further than the Enron case.
- Ease and fees For most organizations, implementing a hotline only takes a few hours and incurs only a nominal cost.
“Implementing a hotline sends a clear message to the organization that acting in an ethical manner counts,” says Randal Simonetti, reputation and crisis management expert with Rochester, N.Y.-based EFP Rotenberg CPAs.
With just a minimal amount of planning a hotline can be effectively implemented, increasing organizational well-being while reducing expenses and distractions.
Raymond H. H. Dunkle, II, CPA, CFF, CFE, ABV, CVA, ASA, CGMA is president of Akron, Ohio-based
