Financial crime is one of the most common risks for many companies, but does whistleblowing help? This is something I wrote about recently in "Revisionsvärlden" a Swedish online trade journal for CFO's, accountants, auditors and the like. In this blog, I share some of the ideas from that article regarding whistleblowing and fighting financial crime. Quite simply, we believe that if organisations fail to have a secure whistleblowing system in place then they fail to do all they can to reduce the risk of financial crime and thus weaken the trustworthiness of the financial reporting of their operations.
Whistleblower tips help detect financial crime
Let us present you with some statistics about financial crime and whistleblowing. In WhistleB's recent annual survey of our customers, participants reported that almost a third of all whistleblower cases related to fraud, financial crime or money laundering. Indeed, ever since we started this survey, financial crime has topped the list in terms of the number of reports received. Customers also cite "Detecting fraud and corruption earlier" as a key benefit of having whistleblower systems in place.
Further, according to the Association of Certified Fraud Examiners' 2018 Report to the Nations, corruption and financial statement fraud are the two costliest forms of occupational fraud. Corruption is particularly likely to be detected by a tip. Fraud losses are 50% smaller at organisations with whistleblowing systems than those without. Organisations without whistleblowing reporting channels are more than twice as likely to detect fraud by accident or by external audit.
New laws will soon make whistleblowing systems even hotter in the world of finance
The value of whistleblowers in combatting financial crime and other illegal activities has not passed the EU by. In April 2019, a new EU Whistleblower Protection Directive was approved to protect the rights of those that are brave enough to blow the whistle. The new rules will have an enormous impact as they cover many areas of EU law, including anti-money laundering and corporate taxation, data protection and protection of the Union's financial interests.
One of the outcomes is that all companies with 50 or more employees will need to establish safe reporting channels within two years, or within four years for companies with between 50 – 250 employees. Companies operating in the area of financial services, products and markets, as well as those vulnerable to money laundering or terrorist financing will also need to comply. If yours is one of the many companies affected, we encourage you to not aim solely to comply with the new directive. The success factor for establishing a whistleblower system is that people feel safe to report serious misconduct such as financial crime, and help you underpin the robustness of your financial reporting. ( Read our tips here)
Whistleblowing – a key tool in the financial reporting toolbox
Of course, financial crime will not be stamped out through whistleblower systems alone.
However, a whistleblowing system is an insurance to your stakeholders that you are aware of the issues regarding financial crime, accounting fraud, bribes and corruption, and that you are doing everything you can to prevent their occurring and impacting your company's financial reporting.
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.