The AICPA Recommends Hotlines for All Organizations

The recent wave of corporate governance legislation has focused attention on fraud prevention measures. With their proven record of deterring and detecting unethical activity, anonymous hotlines have become a critical internal control for many organizations.

AICPA GUIDANCE

Evaluating internal controls can be challenging. The Internal Controls section of the Sarbanes-Oxley Act, Section 404, has become the topic of much debate in the accounting community. To help organizations deal with this issue, the American Institute of Certified Public Accountants (AICPA) published documents in January of 2005 designed to help Board Members and organizational leaders evaluate these mechanisms. One of these documents, Anonymous Submission of Suspected Wrongdoing, provides expert guidance regarding improving the effectiveness of an organization’s hotline, an important control.

HOTLINE EFFECTIVENESS

The AICPA’s publication discusses a variety of ways that your organization can make its hotline more effective.

Highlights include:

• Using a third-party hotline provider to enhance confidentiality and neutrality
• Ensuring calls are answered by trained interviewers 24/7
• Offering a mechanism for continuing dialogue with an anonymous caller
• Documenting follow-up activities in a case management system
• Publicizing the hotline to employees and other stakeholders on a regular basis

PRIVATE ORGANIZATIONS

The AICPA encourages all organizations to establish an anonymous hotline, even those not required to do so by governance legislation. They recommend hotlines because of their proven effectiveness in catching fraud at the management level, citing statistics from the Association of Certified Fraud Examiners (ACFE). Research conducted by the ACFE found that fraud is detected by a tip 40% of the time, making tips the leading method of fraud detection. The same study also found that organizations without a hotline lost twice as much money to fraud as those with a hotline in place.

Visit the AICPA for more information