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VOL. 127 | NO. 75 | Tuesday, April 17, 2012

Reducing Fraud, Waste, Abuse

By Charles Piper

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Charles Piper

On March 21, 2012, Mayor A C Wharton Jr. took a step that will put the City of Memphis on the road to recovery by creating a fraud hotline to report fraud, waste and abuse and ethics violations. As long as those who investigate the complaints for Memphis conduct thorough all-encompassing investigations – the creation of the hotline will be a “game changer” for the city, its employees and the taxpayers.

Hotlines are important for all organizations. According to the Association of Certified Fraud Examiners 2010 Report to the Nations, 46 percent of U.S. frauds were detected by tips and about half of those tips came from employees. Studies have shown that entities with hotlines save money. In the United States, publically traded companies are required to have anonymous reporting functions due to the 2002 U.S. Sarbanes-Oxley Act.

There are several options for allowing employees to report fraud, waste and abuse. Obviously an open-door method allowing suggestions and tips to be received by management costs nothing dollar wise. A Suggestion Box (located at a reasonable place) is an inexpensive alternative, which would allow employees to have input and even remain anonymous if they so desire. Telephonic and electronic hotlines can be developed internally or externally but will cost more to man and/or outsource.

Hotline telephone numbers should be well posted and all employees should be reminded that their input is appreciated; not frowned upon. A reward system would certainly entice input. Creating a hotline is signal that the organization, from the top down, is committed to improving. But it should be emphasized that having a hotline will prove fruitless if the complaints and suggestions are seldom acted upon. Failure to act can even cause morale problems.

Public organizations creating hotlines should also anticipate the need for additional investigative, audit and administrative personnel – not just “criminal” investigators. The good news is that investigations of fraud, waste and abuse tend to save money in the long run. Many federal white-collar audit-investigative agencies recover/save twice or more the amount of money they spend each year. Larger private organizations can utilize internal resources to audit and investigate. Smaller entities can contract out and hire fraud examiners and/or well-qualified private investigators.

Fraud, waste, abuse, corruption, theft and other internal wrongdoing should be investigated thoroughly and promptly. The investigations should determine not only if the original complaint is valid, but expand to determine if there are or have been similar occurrences. Searches should be made for systemic weaknesses, which caused or contributed to the loss or harm. At the conclusion of each investigation, recommendations for improvement should be prepared, reviewed, considered and implemented when appropriate. Hotlines and ensuing thorough investigations benefit the organization, its employees and others.

Charles Piper is a licensed private investigator and certified fraud examiner. He can be reached at pipercfe@cs.com or visit www.piper-pi.com.

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