Why do problems occur?
It is not always easy to report a sensitive issue such as fraud and misconduct. When the immediate work environment is one where loyalty and peer pressure are strong, it can be even more difficult to use the normal channels to escalate such issues. There are many reasons why employees are often reluctant to report suspected fraud and misconduct but the main ones are:
- the employee does not have the confidence their complaint will be investigated or taken seriously
- they fear retaliation from management or from the person subject to the report
- the business has a poor history of taking action against perpetrators
- management is poorly trained to deal with sensitive situations or matters involving criminal or other types of disclosures
- employees fear losing their job or being stigmatised as “disgruntled” or a “trouble maker”.
What is the risk?
To some extent, the very nature of an industry sector will determine the type of fraud and misconduct issues that may occur. While not a complete list, the following are examples of fraud and misconduct issues experienced by retailers:
- marking down inventory without advertising the new price and arranging it to be purchased by insiders
- facilitating the return of inappropriately discounted items at the full retail price
- writing-off inventory and appropriating it for personal benefit
- inappropriate use of staff discount cards
- theft of inventory by staff through access points including delivery docks
- inappropriate relationships and activates on company premises
- use of company resources (people and stock) for private purposes
- running of competing businesses from company premises
- valid visa for right to work.
It would be tempting to see such issues in purely economic terms, but reputation damage can significantly impact a retailer. Loss of customer confidence and business, the ability to attract and retain employees and supplier relationships could all be damaged.
The risk for many businesses is that a serious issue regarding fraud or misconduct isn’t unreported until it is too late.
What is a whistleblowing service?
A whistleblowing service provides employees with an easily accessible and (usually) anonymous way to report (“blow the whistle”) on workplace fraud or misconduct. Typically this will take the form of an employee hotline and/or other channels such as fax, email or website. Once all relevant information is collected, it is evaluated to determine the seriousness of the incident or activity reported. A report of the incident or activity together with recommendations for taking action is then submitted to an agreed contact in the business to action.
How can providing a whistleblowing service help?
A whistleblowing service can provide increased confidence that a serious issue of fraud or misconduct will not go unreported. It can act as an effective management tool and provide a business with insight into a range of issues:
- identification of the type of theft/ fraud the business is vulnerable to
- the mode of fraud/crime committed – is it internal or external?
- an estimation of how much in dollar terms has been defrauded
- factors impacting on the “why” and “how” crimes are committed
- patterns and trends of crimes committed
- indicators as to whether preventative strategies are effective
- indicating a course of conduct by employees
- the specific geographic location
- identification of the security issues involved - physical or non-physical
- the adequacy of staff training
- illustrating the demeanour of employees, their personal habits and their vulnerability to commit crimes or misdemeanours
- a lack of adequate policy and procedures
- a lack of communication of problems between employees and management
- the effectiveness of internal controls.
Best practice and the regulatory environment
Businesses that are serious about corporate governance and ethics have appropriate programs and controls in place to minimise workplace misconduct. Using an independent whistleblowing service is seen as a key component of such programs. Governments and regulators in Australia are increasingly active in this area with a view that businesses should have a mechanism in place that enables employees to report suspected problems within the workplace. For example:
- ASX Corporate Governance Council recommends that Australian listed companies have a whistleblowing system
- Standards Australia has drafted “Whistleblowing Systems for Organisations” setting the benchmark for the use of a whistleblowing system
- The Corporations Act provides protection for whistleblowers and penalties for those who reveal the whistleblower’s identity.
Fraud and misconduct is a risk for most if not all businesses. Normal escalation procedures are not always able to capture sensitive issues. Making an anonymous hotline available to employees is a proven way to mitigate the risk of a serious issue going unreported until it is too late.
