Almost two-thirds of the companies in the US are susceptible to fraudulent activities. All stakeholders have a lot to lose in such cases, with the employees and investors being at the greatest disadvantage. Having an Ethics Hotline is the most popular method of detecting fraud within companies.
As per the Sarbanes-Oxley Act of 2002, all public limited companies are required to maintain a whistleblower and ethics hotline through which illicit company practices can be brought to the limelight. Following the Dodd-Frank Act of 2010, private companies are now obliged to follow suit, ensuring compliance to corporate governance protocols at all levels.
The Dodd-Frank Act of 2010 does not only talk about the compensation and benefits given to whistleblowers but also about the remedies and protection to be made available for them. These laws were a part of a major reformation of the national financial system. In the year 2013, 118 whistleblower cases were undertaken, yielding $15 million in compensation for these individuals.
All laws offer exclusive protection for the whistleblower. For instance, the Patient Protection and Affordable Care Act, and the Fair Labor Standards Act prohibit the employer from taking any action against the whistleblower with respect to health care providence and tax rebates.
Not only this, if any other employees choose to offer their testimonies against an employer’s actions, they too shall be eligible to receive the protection available for whistleblowers. The precise implementation model will be available when the US Department of Labor decides to set rules and regulations in this regard. At the moment, it is an abstract concept that may be deciphered in any way the reader chooses to.
Apart from the fact that it is ordained by law, having whistleblower policies in the company to report errors and illegal practices actually helps the employer in a number of ways. Having a 24/7, 365 days a year ethics hotlines offers an opportunity for employers to diagnose problems and solve them in a timely fashion before it becomes major news.
It is one of the best practices for companies to have whistleblower policies that encourage employees to use internal reporting lines before heading over to the SEC (Securities and Exchange Commission). Only when the employer fails to address employee concerns regarding objectionable practices should the whistleblower tip off the SEC. In most companies, there’s a need to educate employees about the presence, process and use of ethics hotlines.
Ideally, these hotlines should be built in a way to ensure 100% anonymity for the reporter to limit repercussions on the managerial level. Not only will the employees trust such a channel but also feel encouraged to use it as required. The employers (the top-most tier of the C-suite) should have an amiable attitude towards the whistleblower policies, convincing them that they will be heard. In the end, timely detection can prevent the company from falling apart or getting caught into a major liability case.
Another reason why ethics hotlines are popular with employers is because it facilitates the collection of more information from the source. In other communication methods, like the notes, there’s a limited amount of information available to base judgment on. However, employees should be encouraged to use whatever channel they feel comfortable with.
Having an ethics hotline also means the employees who feel ignored, undermined, or unheard can voice their concerns at the top-most level. However, this should not be taken as a tool to harass the management. As on the behalf of the employer, the employee needs to utilize these channels responsibly to attain broader company objectives.