The battle against fraud: do reporting mechanisms work?
| Pages | 784-794 |
| DOI | https://doi.org/10.1108/JFC-05-2017-0048 |
| Published date | 02 July 2018 |
| Date | 02 July 2018 |
| Author | Dominic Peltier-Rivest |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
The battle against fraud: do
reporting mechanisms work?
Dominic Peltier-Rivest
John Molson School of Business, Concordia University, Montreal, Canada
Abstract
Purpose –This paper aimsto explore how well reporting mechanisms work,investigate current trends and
developa frameworkfor implementing effective mechanisms.
Design/methodology/approach –This study is based on primary and secondary data, criminology
theory and best corporatestrategies.
Findings –This study shows that the median number of annual reports equals 1.2 per cent of the
number of employees in an organization and that 40 per cent of these reports have merit (Navex Global,
2014). In addition, 42.2 per cent of all frauds are detected through internal reports, whatever their form.
Organizations with formal reporting mechanisms sustain fraud losses that are 40.5 per cent less than
other organizations (ACFE, 2014). Moreover, employees are more willing to report theft, human resource
and workplace issues than fraud and corruption, while 21 per cent of all whistleblowers have
experienced some form of retaliation for reporting wrongdoing (Ethics Resource Center, 2014). Results
from primary data show that the option to remain anonymous is offered only by 74 per cent of all
reporting mechanisms. This paper argues that effective reporting mechanisms should actively
encourage whistleblowing, that all credible allegations should be independently investigated and that
whistleblowers should be offered the option to remain anonymous. The oversight and the daily
administration of reporting mechanisms should be given to two different parties who are independent
from management and who do not participate in incentive compensation plans (Lipman, 2012).
Research limitations/implications –This paper extends previous research by reporting on current
hotline trendsand integrating various factors intoa frameworkto implement effective reporting mechanisms.
Originality/value –It is the first paper to investigate the effectiveness of reporting mechanisms and
current policytrends.
Keywords Ethics, Retaliation, Fraud, Whistleblowing, Hotline, Reporting mechanisms
Paper type Research paper
Introduction
This paper investigates the best corporate strategies to ensure maximum effectiveness of
reporting mechanisms. Many potential internalwhistleblowers will not put their careers in
danger without a guarantee of anonymity and an independent investigation of their
allegations (Lipman, 2012). The lack of reporting or tips, therefore, does not necessarily
mean that the organization is free of fraud or other illegal activities,but it may indicate that
potential whistleblowers face too many disincentives, such as discrimination, social
isolation and the risk of termination,to blow the whistle.
The largest fraud in corporate historyoccurred at WorldCom in 2002 and was eventually
discovered by Cynthia Cooper, the vice-president of internal audit, and her team of internal
The author thanks the participants of the 2016 Irish Accounting and Finance Association (IAFA)
Annual Conference, the 2017 American Accounting Association (AAA) Forensic Accounting
Conference and the 2017 European Accounting Association (EAA) Annual Conference for their
helpful comments.
JFC
25,3
784
Journalof Financial Crime
Vol.25 No. 3, 2018
pp. 784-794
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-05-2017-0048
The current issue and full text archive of this journal is available on Emerald Insight at:
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