By Adam Decker, Marketing −
Employee fraud hotlines are very effective in reducing the amount of fraud carried out by employees, according to a 2014 study carried out by the Association of Certified Fraud Examiners.
Each year employee fraud around the world is costing around $3.7 trillion in losses to organizations, nonprofits, businesses and government offices. Almost half of the fraud cases surveyed by the ACFE in 2012 and 2013 took place in the United States.
Employee Hotlines Catch Them in the Act
Results of this study show that 42 percent of fraud cases surveyed in 2012 and 2013 began with an allegation made by another employee. Sixteen percent of cases were discovered through management reviews, 3 percent through external audits, and 1 percent were caught by IT controls.
The ACFE survey shows that allegations made by employees most often occur in the detection of fraud that has been going on for an average of eighteen months, with an average loss of $149,000.
It appears that around 50 percent of employers in the U.S. now have an employee fraud hotline, but few of them are offering any financial incentive for employees to use the system.
Review Systems Prevent
Having an effective review system in place can be more effective than employee hotlines in reducing the amount of loss from employee fraud, simply because active monitoring allows crimes to be detected earlier. When review systems are used, the average loss is $49,000 from frauds that have been in operation for an average of nine months.
Without a reporting system, or any effective monitoring, employee fraud is found only by accident. In these cases fraud goes undetected for an average of thirty-two months, with an average loss of $325,000.
Following the Fraud Trail
An employee fraud hotline will only work for fraud prevention when an employer takes steps to follow up each allegation. An investigation by The New York Times in 2012 revealed that Wal-Mart had ignored bribery allegations when the company was expanding the number of its stores in Mexico. As a result, both Mexican and United States officials are now involved in an investigation of Wal-Mart, costing around $439 million.
Many more cases of employee fraud could be detected much sooner if more organizations around the world were willing to set up a hotline and investigate all employee allegations. Fraud would be detected faster and financial losses would be much lower. It would also save a significant amount of cost to the authorities involved in compliance investigations.
Corruption is a very difficult thing to deal with, but emerging technologies could make it easier. One such technology is EyeDetect™. EyeDetect could bring an incredible advantage to corruption investigators by giving them an easy-to-use lie detection test. It is non-intrusive, analyzing the movements of examinee’s eyes instead of biological signals. It takes very little time to train administrators, making it easy to implement in many arenas. This could provide investigators with a much-needed edge in the battle against corruption.