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Best Practices for Ethics Hotlines

Malone Tony | March 6, 2003

One of the many effects of the Sarbanes-Oxley Act of 2002 is that thousands of public companies are now considering offering their employees an anonymous hotline. This is an important step toward minimizing losses due to fraud.

The Association of Certified Fraud Examiners found in their 2002 Report to the Nation that fraud was detected by tips 46 percent of the time, making tips the leading method for detecting fraud. The study also found that organizations with a fraud hotline cut their losses by approximately 50 percent per scheme, presumably because the fraud was discovered faster through the tip.

While internal audits, external audits and background checks also significantly reduced losses, the greatest reduction in loss was associated with anonymous reporting mechanisms, such as a hotline.

There are many benefits to an effective hotline program. Beyond the obvious financial benefit of...

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