Welcome to MNP's blog series in support of Fraud Prevention
Month. Throughout the month of March, we will be exploring various
fraud prevention issues affecting businesses and individuals.
This first installment discusses the fraud prevention aspects of
a whistleblower reporting service.
Whistleblower Reporting Line
Consider this hypothetical, yet common scenario.
John is an accounts payable clerk at a mid-sized, private
corporation. His direct supervisor, Bob, is the accounts payable
manager. Bob submits an invoice for payment and processing. All of
the required documents are provided, with approval signatures,
however, John didn't recognize the vendor name and the
vendor's address is a post office box within the city.
John raises his concern with Bob and is told that he is paid to
process the invoices and payments, not to question them. Not
knowing how to proceed and in fear of losing his job, John process
the invoices and continue on with his day-to-day activities.
It turns out that Bob has been submitting false invoices from a
fictitious vendor, forging approval signatures and depositing the
cheques into an account that he controlled.
While a red flag was raised regarding the unknown vendor, it was
raised with the individual who was perpetrating the fraud. The lack
of an independent and confidential reporting mechanism creates an
inherent conflict of interest. As a front line employee, questions
and concerns are generally brought up through the chain of command
and in this hypothetical case, that is the accounts payable
After initially reporting his concern to Bob, John is put in a
precarious situation. The response from Bob was not a satisfactory
answer, however, John is reluctant to pursue the matter out of fear
of appearing to be insubordinate to Bob and a perceived threat to
his job security. Without a whistleblower policy, John's
options for a resolution to his concerns are limited.
Had the company implemented an internal whistleblower policy, it
may have provided John with guidance on how to raise his concerns
with the appropriate level of authority. Whistleblower policies set
out how an employee can report their concerns. The policy should
also outline the whistleblower's rights and the measures taken
to protect the individual from retaliation and explain how
complaints will be treated and / or investigated.
The above example is a common scenario that could go undetected
for a very long time, resulting in significant losses to the
company. It is also a situation that could be avoided with the use
of a whistleblower reporting service.
Some of the largest frauds in history have been discovered by a
tip from an employee or other individual who decided to blow the
whistle. Many times, especially when the concern is related to an
individual who is in a position of authority, an employee may be
reluctant to report them in fear of reprisal. While there is
legislation to protect a whistleblower's rights, the thought of
being identified as the whistleblower is sometimes enough to deter
somebody from reporting their concerns.
Access to a third-party whistleblowing service can alleviate
these concerns as they are completely anonymous and confidential.
Potential whistleblowers may be more inclined to report an act of
misconduct knowing that the reporting service is available at any
time, day or night and that their concerns will be monitored and
tracked by a third party.
According to the Association of Certified Fraud Examiners, the
most common form of fraud detection with respect to occupational
fraud is through a tip. Approximately 42% of fraud cases are
detected by a tip from a whistleblower.
Statistics show that more than 45% of the tips received are from
individuals outside the organization, including customers, vendors,
competitors and shareholders.
While a whistleblower hotline, on its own, can be an effective
tool in the detection and prevention of fraud, organizations can
maximize its effectiveness though awareness, education and training
for employees in conjunction with a demonstrated corporate culture
that promotes ethical behaviour and a commitment to fraud detection
and prevention. In addition, with a significant portion of tips
coming from external sources, organizations can benefit from
informing its customers, vendors and shareholders that a fraud
reporting mechanism is available for reporting misconduct.
Whistleblower hotlines or reporting services are a simple way to
provide an independent, cost-effective tool in combating fraud
within an organization.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should be
sought about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Canadian engineering and construction giant SNC-Lavalin has been charged by the RCMP with paying bribes of nearly $48 million to Libyan government officials and defrauding Libya of nearly $130 million.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).