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Silence Is Not Necessarily Golden: Elements of an Effective Whistleblower Hotline

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September 30, 2014
Corporate Governance Quarterly Update

It has been reported that approximately two-thirds of companies in the U.S. are affected by fraud, losing an estimated 1.2% of revenue each year to such activity. Indirect costs associated with fraud, such as reputational damage and costs associated with investigation and remediation of the fraudulent acts, may also be substantial. When and where implemented, an internal whistleblower hotline is a critical component of a company’s anti-fraud program, as tips are consistently the most common method of detecting fraud. Consequently, it is essential that companies consider implementing, if they have not already done so, effective whistleblower hotlines. To the extent hotlines are currently in place, companies need to evaluate them to ensure that the hotlines are operating as intended and are effective in preventing and identifying unethical or potentially unlawful activity, including corporate fraud, securities violations and employment discrimination or harassment. This evaluation should be a key element of every company’s assessment of its compliance and ethics program.

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