Effective Fraud Reporting Mechanisms: The Who, What, When, Where, Why, and How

Updated: Oct 1

A Fraud Reporting Mechanism is a crucial piece of your organization’s Anti-Fraud Program. Let’s break down the details of what this looks like.


Why:

43% of internal fraud is discovered by tips. It is the leading way internal fraud is discovered. If you have no way for people to confidently report suspicions of fraud, many will stay silent. Give your employees a way to communicate suspicions without fear of retaliation should they be identified.


What:

A fraud reporting mechanism is simply a way for employees to report suspicions of fraud. To be most effective, it MUST be anonymous.


When:

You should implement a fraud reporting mechanism as soon as possible. Not only does it give your employees the ability to communicate confidently, but it also immediately raises the perception of detection of fraud in your organization. You instantly contribute to an atmosphere that takes fraud seriously.


Who:

This is one of the first steps; decide who will receive the notifications. Typically, the highest level of the organization should be the one to receive notice of suspicions of fraud. This can be the governing body, like a board of directors or audit committee, or it could be the owner of the business and another responsible party. It is best to strive for at least two parties to receive notice. An organization may choose to have its legal counsel, internal or external, receive notification.


Where and How:

How are suspicions of fraud reported and received?


Written Option: Discretion and anonymity is the goal. Provide a simple form that

gathers as much information about the suspicion as possible. In an anonymous form

submission, you do not have an opportunity to go back and ask questions of the

reporter. This form should be available to everyone through an accessible employee

manual or stored on the company intranet for discreet access.


Include clear instructions about where the form can be discreetly submitted. It could be

mailed to a designated address, placed in a locked box to be accessed by a responsible

party, or even emailed by a disguised sender email.


Telephone Option: Consider a fraud hotline as an alternative to a written submission.

You can choose to provide your own fraud hotline internally, but consider all of the

following factors:

  • Operating hours

  • Interview training for workers

  • Guidelines for handling moral/behavior issues reported

  • How information obtained is distributed

  • Consider escalation criteria and training necessary to assess

  • Printing the hotline number on checks, invoices, letterheads etc.


For most organizations, it is much more manageable and cost-effective to hire a hotline service. Simply provide the number for the hotline to all employees in an easy to find location.

A fraud reporting mechanism is a non-negotiable piece of an effective anti-fraud program. Understand the simple basics, design, and implement one for your organization today.


Empowering small businesses to develop strong Anti-Fraud Programs is our mission. We provide consultations to design, evaluate, and improve your anti-fraud program. You can also get a step-by-step guide to design a program that can be tailored for your specific needs by purchasing Steve Dawson’s book, Internal Control/Anti-Fraud Program Design for the Small Business.


If you think there may already be fraudulent activity in your company, contact us today through our website.

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