Benchmarking Your Whistleblower Hotline

Evaluating Your Report Frequency

The frequency of hotline reporting varies considerably by industry as shown in Table 1, below (sourced, like all the tables, from data in the Report):

To see how many reports your whistleblower mechanism might generate if it functioned at an average level, multiply the report frequency for the appropriate industry by the number of employees you have, in thousands. For instance, a finance company with 50,000 employees might expect 380 incident reports annually (50 x 7.6). If you are within a reasonable range of that prediction, your whistleblower system would be performing consistently with the industry average.

If you are only getting a fraction of the industry average, that could be a cause for concern. A common culprit is the employee training and communications program. Training should be repeated periodically. Employee communications encouraging use of the hotline should be fairly frequent to sustain interest and usage. A low call volume can be due to employees' using other methods to report potential wrongdoing. Before benchmarking your hotline, you may be able to aggregate data from each reporting method to allow for such differences. If you are receiving many more hotline reports than your industry peers, your hotline may be working well while others are laboring to raise usage. On the other hand, if you are deluged in calls about minor issues, you may need to amend your employee communications to redirect simple concerns to be resolved locally by supervisors and human-resources personnel.

Further analysis can show whether the variance in reports is local or pervasive. Pockets of divergence from reporting norms are common in decentralized organizations. These can reflect the performance of local management in creating an appropriate workplace environment but can also be due to communication challenges and language or cultural differences. Where there is a surge in reports, studying the mix of reports and even individual incident reports can help identify potential causes, sometimes revealing a new issue or trend that merits intervention before it spreads organization-wide.

Evaluating Your Incident Mix

Hotlines are sometimes disparaged as largely generating complaints by employees about personnel quibbles with few significant issues. The facts shown by the Report paint a more productive picture. Just over 51% of the reports involved personnel management matters. These can include serious issues as well as minor ones that human resources departments can normally resolve. The other 49% of reports comprised a variety of potentially serious matters, as Table 2 shows (below). The mix of different incident types reported varies by industry, so using benchmarking data for the right industry is important. For example, for finance companies, corruption and fraud issues represent 18.5% of incidents reported, compared with just 9.2% for transportation companies.

Organization size also affects the variance from industry averages. In a smaller organization, a smaller volume of reports can swing the percentages considerably, depending on which category each falls into. In general, if a particular category of reports is missing or apparently underrepresented, that could be due to a gap in employee training and communications. Alternatively, if a particular category of reports represents an unusually large proportion of the total, that could indicate non-compliance with the organization's policy, a lack of sufficient policy guidance for that area, or another reason.

Clues to Your 'Tone at the Top'

If your organization has a good 'tone at the top,' employees are generally more likely to communicate openly with supervisors without fear of reprisal. But where employees fear to speak out openly and rely heavily on anonymity to report their concerns, that suggests a more challenging workplace environment. The Report provides data on the proportion of participants who chose to remain anonymous when reporting their concerns. Once again, the data vary considerably by industry, as Table 3, below, shows.

The use of anonymity also varies according to the nature of the issue, ranging from a high of 61.6% when reporting on customer or competitor interactions, to a low of 34.6% for reports about corruption and fraud. This suggests people may be more willing to speak out about corruption and fraud, perhaps because these are generally viewed as more serious issues with more predictable organizational responses and less likelihood of reprisals. The actual experience of fraud whistleblowers is not always so rosy.

In performing your benchmarking analysis, you should compare your percentage of anonymous whistleblower reports with the relevant industry average presented in Table 3. If your organization's rate of anonymity is lower than the industry average, it's possible that your organization is trusted more to address complaints fairly without reprisal, reflecting a favorable tone at the top. But if your organization's anonymity rate is higher than average, fear of reprisal could be a greater concern. That could undermine the effectiveness of the whistleblower system and may weaken a claim under the federal sentencing guidelines that you have an effective ethics and compliance program.

Evaluating Your Local Management

Your hotline benchmarking exercise can provide additional insight into local management. In an ideal world, employees would comfortably raise concerns with their supervisors, who would take prompt and appropriate actions that resolved those concerns satisfactorily. Under such circumstances, that might make whistleblower systems into a backstop, used only in rare circumstances such when supervisors miss the ball.

The Report indicates that nearly 29% of hotline reporters had informed management of their concerns prior to making the hotline report. In some cases, this might be because managers redirected employees to the hotline for certain issues in order to access assistance not available locally. But you should be concerned if employees are calling the hotline because their managers did not respond appropriately. Other data from the study strengthen this concern. Of the participants who notified management prior to making a report, nearly 66% chose to remain anonymous when reporting through the hotline. This may suggest that these employees were dissatisfied with local management's response and may have feared reprisal if they used their names on the hotline.

If the percentage of whistleblower participants at your organization who are notifying management of their concerns before using the hotline is lower than in the benchmarking study, your managers may be doing an above-average job in resolving employees' concerns promptly and appropriately. If the opposite is true, you may wish to examine whether your managers are suitably trained and empowered to perform this role effectively. In a larger organization, you can do this analysis separately for different operating units or geographic locations, potentially identifying problematic pockets within the organization.

Evaluating Your Case Resolution Processes

The Report can help you evaluate whether your case investigation and resolution process is producing results in line with industry averages. It shows that, of the cases for which final outcomes were known, 34.7% of reports were judged not to warrant investigation, 46.6% resulted in investigation with corrective action, and 18.7% resulted in investigation but no corrective action. So nearly two-thirds of reports merited investigation and nearly half led to corrective action. That suggests that hotlines can be an efficient source of valuable information. The percentage of cases not warranting investigation varied from 8.9% to 41.7%, depending on industry.

If the proportion of your reports not meriting investigation is higher than your industry peers, your employee training may be unclear, your hotline interviewers may not be obtaining sufficient information to permit an investigation, or you may not be judging some types of incidents as seriously as other organizations. Alternatively, if you investigate an unusually high proportion of reports, you may be unusually diligent or you may be deploying investigation resources less efficiently. If your proportion of investigated cases that lead to corrective action is lower than the industry average, you may want to re-evaluate your investigative process. You could be using resources on cases that may not justify it, or maybe your investigations are not as effective as they could be producing conclusive and actionable findings.

Conclusion

The Report gives you several ways to benchmark your hotline, identify potential weaknesses, and take steps to enhance its effectiveness. We encourage you to read it and would be happy to provide copies of the study.

[IMGCAP(1)]

[IMGCAP(2)]

[IMGCAP(3)]

Toby J.F. Bishop, a member of this newsletter's Board of Editors, is a partner and Deborah J. Temkin is a senior manager in the Forensic and Dispute Services practice of Deloitte Financial Advisory Services LLP in Chicago. They may be contacted at [email protected] and http://www.lawjournalnewsletters.com/Admin/cgi-bin/udt/dtemkin%[email protected]. The views expressed in this article are those of the authors and may not be those of Deloitte Financial Advisory Services LLP.

ABC Company was overconfident about the effectiveness of its hotline, which was producing only about 25% of the industry average call volume. XYZ Inc.'s hotline had a similar issue, generating only 15%. In both instances, using a breakthrough benchmarking study, we identified the low usage and recommended potential remediation steps.

The 2006 Corporate Governance and Compliance Hotline Bench-
marking Report ('the Report') was issued by CSO Executive Council, the Association of Certified Fraud Examiners and The Network. The Report is based on an analysis of over 200,000 incident reports from more than 500 organizations over four years.

According to the Association of Certified Fraud Examiners' 2006 'Report to the Nation,' tips are the number-one way in which occupational frauds are detected. Whistleblower mechanisms are an essential component of Sarbanes-Oxley and Federal Sentencing Guidelines compliance programs. So, to detect wrongdoing and to be able to demonstrate to the authorities or those charged with governance the effectiveness of your organization's hotline, it's important to identify and fix hotline performance issues promptly.

Evaluating Your Report Frequency

The frequency of hotline reporting varies considerably by industry as shown in Table 1, below (sourced, like all the tables, from data in the Report):

To see how many reports your whistleblower mechanism might generate if it functioned at an average level, multiply the report frequency for the appropriate industry by the number of employees you have, in thousands. For instance, a finance company with 50,000 employees might expect 380 incident reports annually (50 x 7.6). If you are within a reasonable range of that prediction, your whistleblower system would be performing consistently with the industry average.

If you are only getting a fraction of the industry average, that could be a cause for concern. A common culprit is the employee training and communications program. Training should be repeated periodically. Employee communications encouraging use of the hotline should be fairly frequent to sustain interest and usage. A low call volume can be due to employees' using other methods to report potential wrongdoing. Before benchmarking your hotline, you may be able to aggregate data from each reporting method to allow for such differences. If you are receiving many more hotline reports than your industry peers, your hotline may be working well while others are laboring to raise usage. On the other hand, if you are deluged in calls about minor issues, you may need to amend your employee communications to redirect simple concerns to be resolved locally by supervisors and human-resources personnel.

Further analysis can show whether the variance in reports is local or pervasive. Pockets of divergence from reporting norms are common in decentralized organizations. These can reflect the performance of local management in creating an appropriate workplace environment but can also be due to communication challenges and language or cultural differences. Where there is a surge in reports, studying the mix of reports and even individual incident reports can help identify potential causes, sometimes revealing a new issue or trend that merits intervention before it spreads organization-wide.

Evaluating Your Incident Mix

Hotlines are sometimes disparaged as largely generating complaints by employees about personnel quibbles with few significant issues. The facts shown by the Report paint a more productive picture. Just over 51% of the reports involved personnel management matters. These can include serious issues as well as minor ones that human resources departments can normally resolve. The other 49% of reports comprised a variety of potentially serious matters, as Table 2 shows (below). The mix of different incident types reported varies by industry, so using benchmarking data for the right industry is important. For example, for finance companies, corruption and fraud issues represent 18.5% of incidents reported, compared with just 9.2% for transportation companies.

Organization size also affects the variance from industry averages. In a smaller organization, a smaller volume of reports can swing the percentages considerably, depending on which category each falls into. In general, if a particular category of reports is missing or apparently underrepresented, that could be due to a gap in employee training and communications. Alternatively, if a particular category of reports represents an unusually large proportion of the total, that could indicate non-compliance with the organization's policy, a lack of sufficient policy guidance for that area, or another reason.

Clues to Your 'Tone at the Top'

If your organization has a good 'tone at the top,' employees are generally more likely to communicate openly with supervisors without fear of reprisal. But where employees fear to speak out openly and rely heavily on anonymity to report their concerns, that suggests a more challenging workplace environment. The Report provides data on the proportion of participants who chose to remain anonymous when reporting their concerns. Once again, the data vary considerably by industry, as Table 3, below, shows.

The use of anonymity also varies according to the nature of the issue, ranging from a high of 61.6% when reporting on customer or competitor interactions, to a low of 34.6% for reports about corruption and fraud. This suggests people may be more willing to speak out about corruption and fraud, perhaps because these are generally viewed as more serious issues with more predictable organizational responses and less likelihood of reprisals. The actual experience of fraud whistleblowers is not always so rosy.

In performing your benchmarking analysis, you should compare your percentage of anonymous whistleblower reports with the relevant industry average presented in Table 3. If your organization's rate of anonymity is lower than the industry average, it's possible that your organization is trusted more to address complaints fairly without reprisal, reflecting a favorable tone at the top. But if your organization's anonymity rate is higher than average, fear of reprisal could be a greater concern. That could undermine the effectiveness of the whistleblower system and may weaken a claim under the federal sentencing guidelines that you have an effective ethics and compliance program.

Evaluating Your Local Management

Your hotline benchmarking exercise can provide additional insight into local management. In an ideal world, employees would comfortably raise concerns with their supervisors, who would take prompt and appropriate actions that resolved those concerns satisfactorily. Under such circumstances, that might make whistleblower systems into a backstop, used only in rare circumstances such when supervisors miss the ball.

The Report indicates that nearly 29% of hotline reporters had informed management of their concerns prior to making the hotline report. In some cases, this might be because managers redirected employees to the hotline for certain issues in order to access assistance not available locally. But you should be concerned if employees are calling the hotline because their managers did not respond appropriately. Other data from the study strengthen this concern. Of the participants who notified management prior to making a report, nearly 66% chose to remain anonymous when reporting through the hotline. This may suggest that these employees were dissatisfied with local management's response and may have feared reprisal if they used their names on the hotline.

If the percentage of whistleblower participants at your organization who are notifying management of their concerns before using the hotline is lower than in the benchmarking study, your managers may be doing an above-average job in resolving employees' concerns promptly and appropriately. If the opposite is true, you may wish to examine whether your managers are suitably trained and empowered to perform this role effectively. In a larger organization, you can do this analysis separately for different operating units or geographic locations, potentially identifying problematic pockets within the organization.

Evaluating Your Case Resolution Processes

The Report can help you evaluate whether your case investigation and resolution process is producing results in line with industry averages. It shows that, of the cases for which final outcomes were known, 34.7% of reports were judged not to warrant investigation, 46.6% resulted in investigation with corrective action, and 18.7% resulted in investigation but no corrective action. So nearly two-thirds of reports merited investigation and nearly half led to corrective action. That suggests that hotlines can be an efficient source of valuable information. The percentage of cases not warranting investigation varied from 8.9% to 41.7%, depending on industry.

If the proportion of your reports not meriting investigation is higher than your industry peers, your employee training may be unclear, your hotline interviewers may not be obtaining sufficient information to permit an investigation, or you may not be judging some types of incidents as seriously as other organizations. Alternatively, if you investigate an unusually high proportion of reports, you may be unusually diligent or you may be deploying investigation resources less efficiently. If your proportion of investigated cases that lead to corrective action is lower than the industry average, you may want to re-evaluate your investigative process. You could be using resources on cases that may not justify it, or maybe your investigations are not as effective as they could be producing conclusive and actionable findings.

Conclusion

The Report gives you several ways to benchmark your hotline, identify potential weaknesses, and take steps to enhance its effectiveness. We encourage you to read it and would be happy to provide copies of the study.

[IMGCAP(1)]

[IMGCAP(2)]

[IMGCAP(3)]

Toby J.F. Bishop, a member of this newsletter's Board of Editors, is a partner and Deborah J. Temkin is a senior manager in the Forensic and Dispute Services practice of Deloitte Financial Advisory Services LLP in Chicago. They may be contacted at [email protected] and http://www.lawjournalnewsletters.com/Admin/cgi-bin/udt/dtemkin%[email protected]. The views expressed in this article are those of the authors and may not be those of Deloitte Financial Advisory Services LLP.