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Fraud Hotlines: Should You Have One?

3/6/20 – Larry Brown

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The evidence speaks for itself. A recent report from the Association of Certified Fraud Examiners (ACFE) suggests the answer is abundantly clear, “yes” — your institution should have a fraud hotline. Employee fraud is a problem for most organizations, but it’s particularly prevalent among banks, credit unions and other financial institutions. Fraud hotlines reinforce principles that should be part of a company’s code of conduct, stating that unethical behavior is unacceptable. Tip lines provide support for the code of conduct by giving employees a mechanism for reporting violations.

According to the Association of Certified Fraud Examiners (ACFE), banking and financial services was the most-represented sector in its 2018 Report to the Nations on Occupational Fraud and Abuse. The sector had 366 cases of reported fraud with a median loss of $110,000. The most common method of detecting fraud was via tips from employees, customers, vendors and others. The 2018 report indicated that 40% of fraud cases were detected by a tip. In fact, the report found that fraud is more likely to be detected through a tip than as a result of an internal audit or management review. The ACFE also found that organizations with reporting hotlines are nearly twice as likely to detect fraud through tips, and they experience losses 50% lower than those without hotlines.

Telephone hotlines (used by 39.5% of organizations with formal fraud reporting mechanisms) are the most common source of tips, followed by tips submitted via email (34.1%) and tips submitted via Web-based or online forms (23.5%).

Tip lines encourage and facilitate anonymous reporting – they are a proven fraud deterrent that can be successfully implemented without burdensome effort or expense. If your institution needs assistance with creating a tip line, would like an independent review of your policy and procedures, or need a Certified Fraud Examiner to investigate a fraud tip, contact VonLehman's specialized Financial Institutions Group today at lbrown@vlcpa.com or 800.887.0437.