A new weapon in the battle

By: Steve Kerby and Ricardo Resio, SPHR

It's an unfortunate fact of business life. The potential for fraudulent activity is not only very real, it is on the rise. Last year alone, more than $400 billion was lost by U.S. organizations due to fraud and the average loss in a fraud occurrence was $160,000.* Perhaps even more disturbing is the fact that much of this fraud is committed by employees. In fact, the typical organization loses seven percent of its annual revenue to occupational fraud.

Red Flag Reporting is a system that enables employees to report any concerns of improper activity within the workplace. It is estimated that 46 percent of frauds are detected by someone speaking up.* Implementing a safe and private avenue for employees to report suspicious behavior — without fear of repercussion — encourages employees to become part of the solution. Red Flag Reporting has been implemented by Rehmann for use throughout the firm.

The system is simple. Comprised of a 24/7 toll-free hotline and website, Red Flag Reporting allows employees to anonymously "voice" their concerns — financial concerns such as theft or compliance matters, personal concerns such as harassment, discrimination or safety issues or substance abuse, etc. And whether reported by phone or on-line, participants have the option of being completely anonymous.

This is an important internal control procedure that constructively brings potential unethical or illegal concerns to the forefront. Even if an employee only suspects something may be amiss, bringing it to someone's attention early enables a concern to be resolved while it is small — well before it has the chance to escalate into a large problem. Further, it shows employees that their company is committed to maintaining a work environment free from such distractions.

Estimates calculate that three out of five companies will be sued by an employee for a matter that occurred sometime between the pre-hiring process and the exit interview. The average court settlement for an employee-related claim is $40,000. The average verdict in an employee-related case is $140,000. A hotline allows employers to address a situation early — before it becomes a matter for the courts.

Red Flag Reporting was created as an effective, turn-key protection program to help initiate the best practice controls. Developed by experienced fraud investigators and human resources consultants, Red Flag Reporting is a highly effective program to detect and report unethical behavior, and stop costly problems such as embezzlement, false billing, misuse of assets and accounting irregularities. The program also addresses employee protection, raising red flags before a work condition leads to a litigious situation. With a user-friendly interface, Red Flag Reporting is proven to protect your organization's employees, goodwill and bottom line.

It's not merely an 800 number. Red Flag Reporting is unique from other hotlines because its features make it more than just a reporting function. The system includes analysis of reports and training that is focused on helping you maintain a positive tone at the top of your organization. Red Flag provides effective fraud and abuse prevention and detection measures, so your focus can remain on your customers. What's more, it's also available in Spanish (both on the website and by phone).

For further information regarding the system, its implementation or if you are interested in purchasing it for your company, contact your trusted Rehmann business advisor.

*Source: Association of Certified Fraud Examiners/2009 Report to the Nation