Survey Sees Rise in Corporate Fraud Hotline Reports
The just-released “The 2013 Corporate Governance and Compliance Hotline Benchmarking Report” shows that hotline incident reports for corporate fraud in 2012 rose to an all-time high since 2005, when the report was first put together by The Network Inc., a governance and compliance consultant.
The report is an annual statistical study offering an index that measures the percentage of fraud-related reported incidents across industries, regardless of size. The reports are not a random sample, but are voluntary from clients that choose to participate.
According to the report, the cross-industry incident-reporting rate increased to 9.27 reports per 1,000 employees, an eight percent increase from the previous year. And the index for corporate fraud rose to a record 23.6 percent, compared with 18.3 five years ago.
Luis Ramos, chief executive of The Network, told CorpCounsel.com that the report can be an important tool for general counsel to compare their companies with industry trends.
Ramos explained, “It's important to consider whether there have been additional awareness measures which can lead to an increase in reporting, or whether there is an actual increase in occurrences. If an organization is experiencing an increase in fraud problems, but reporting is not taking place, that could point to an area where the GC needs to provide additional direction to correct the issues and prevent future incidents.”
In an introduction to the report, Ramos wrote that he was “struck” by the overall increase in the incident report rate, which was mainly driven by a higher rate in the construction industry, but also by smaller increases in other industries. He tied the increases to the rebounding housing industry.
“In fact, it appears that the growing economy and reduced unemployment are key drivers of increased ethics and compliance reporting,” Ramos added.
During times of economic growth, he said, a company can shift its focus “to meeting the demands of the marketplace, and we run the risk of backsliding” on compliance.
Ramos also said that the survey found no evidence that the three-year-old Dodd-Frank Act, with its so-called bounty program for reporting corporate fraud, has had any impact on internal reporting of incidents.
“It appears that by creating solid [compliance] programs and encouraging employees to speak up, companies are creating an environment where reporting levels have remained stable,” he surmised.
The report’s other key findings include:
Reports of retaliation were generally lower, but were highest in the industry category transportation/communications/utilities, followed by construction.
Actionability—meaning the percentage of reports warranting further investigation—rose to 72 percent for all industries; but it was lower by percentage for retaliation incidents compared to non-retaliation ones, 38 percent vs. 44 percent.
The anonymity rate of reporting increased very slightly over the previous year to 49 percent. But only one of five anonymous employees had previously notified management prior to filing the report, the same percentage as the previous year.