Employees are best source of information to combat fraud

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Two recent reports bolster the case for whistleblower protection by demonstrating that employees are by far the best source of information to expose wrongdoing.

1) PriceWaterhouseCoopers 2007 Global Economic Crime Survey

This report is based upon detailed information gathered from from 5,400 senior executives in 40 countries.

Among the findings of this: 43% of the crimes detected by survey respondents were originally detected by employee tip-offs -- whether to whistleblower hot-lines, or internal or external channels. This detection rate was higher than all of the management-controlled mechanisms combined (internal audit, fraud risk management, suspicious transaction reporting, corporate security and rotation of personnel) which together accounted for 34% of crimes detected.

An additional 24% of crimes were detected by non-management-controlled mechanisms such as law enforcement or accidental discovery.*

PriceWaterhouseCoopers 2007 Economic Crime Survey

The full report can be downloaded here:
PriceWaterhouseCoopers 2007 Economic Crime Survey

2) Association of Certified Fraud Examiners 2008 Report To The Nation

The ACFE is a professional association for people like Harry Markolopolis, the analyst-turned-investigator was the first to spot that Bernie Madoff was a fraud. This study is based on data compiled from 959 cases of occupational fraud that were investigated between January 2006 and February 2008.

Like the PWC report, this one confirms that employee tip-offs are by far the most single effective method of detecting frauds. For cases where an executive or owner was the wrongdoer, employee tips accounted for 51.7% of cases detected, more than all of the management-controlled mechanisms combined (internal audit, internal controls, and external audit) which together accounted for 43.9% of cases.

A further 20.8% of cases were detected by non-management-controlled methods: by accident or by the police.*

ACFE 2008 Fraud Report

The full report can be downloaded here:
Association of Certified Fraud Examiner 2008 Report To The Nation

* Note: percentages may add up to more than 100% since some frauds were detected by more than one method.


Additional research

Between 2005 and 2008 an extensive study of whistleblowing was conducted in Australia, funded by by the Australian Research Council, five universities and 14 partner organizations. The major employee survey captured evidence from 7,663 public officials from 118 public agencies. Additional role-specific surveys targetted internal witnesses, case-handlers and managers within the same jurisdiction.

Among its many findings this study concluded that:

...respondents to a survey of managers and case-handlers rated 'reporting by employees' as the single or equal most important means by which wrongdoing was brought to light in their organisations.

(See page xxiii of the summary.)

The full report can be downloaded here:
Whistleblowing in the Australian Public Sector