Internal Helplines v. Third-party Systems

Critical factors for consideration when implementing a helpline reporting system.

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Abstract

This whitepaper describes the major factors for consideration when determining whether to develop and manage an ethics and compliance helpline or “hotline” reporting system versus selecting and implementing an outsourced solution.

Creating an Effective Reporting Solution

Implementing a confidential and anonymous reporting system is a critical endeavor for organizations of all types and sizes that are committed to enacting stronger and more effective governance practices. Helpline reporting systems have been mandated in key pieces of legislation (such as Sarbanes-Oxley and the Federal Sentencing Guidelines) and are described by the Association of Certified Fraud Examiners (ACFE) as the most effective method of detecting fraud in the workplace. A successful helpline reporting system can yield important benefits, including:

Reduced losses from fraud
Improved insight into organizational behavior
Enhanced satisfaction among employees and other stakeholders
Reduced financial, legal and reputation risk

In fact, the ACFE finds that organizations without an anonymous helpline suffer median losses over two times greater than organizations with an anonymous reporting mechanism in place.

Each organization must analyze their inherent risk factors and operational requirements based on their size, scope and geographic reach. After making the decision to implement a reporting system, companies must decide whether to develop an internal helpline or integrate a third-party system with their current ethics and compliance programs. Several factors are critical to this decision and can have a dramatic effect on the overall cost, stakeholder use, effectiveness for mitigating risk and regulatory compliance requirements that the reporting system must meet. These factors include:

Accessibility and universal availability of the helpline
Provisions of the system to protect reporter anonymity
Employee trust of the system
Anonymous feedback capability
Compliance with state, federal and international data privacy requirements
Mitigation of liability
Support mechanisms to review and resolve reported issues
Ability to review and assess the efficacy of the reporting system
Data security during reporting and follow-up
Secure retention of all information
Ongoing report distribution and other operational costs
Implementation costs

Developing an internal system requires much more than installing a toll-free telephone and answering machine. To effectively meet the best practice guidelines for installing and utilizing an internally sponsored helpline, managers and directors must consider first how the organization will manage 24/7 intake of reported information. Also critical are how reported information will be distributed to authorized individuals and how follow-up questions may be posed to an anonymous reporter. In order to receive protections under the Federal Sentencing Guidelines, the organization must also document the steps taken in review and resolution, and securely retain this information.

At first blush, this is why most organizations outsource their helpline solution to a third party. In utilizing a third party solution, companies can embrace industry-wide best practices by leveraging the experience, technology, and processes developed by organizations focused specifically on anonymous reporting solutions for the receipt, resolution and mitigation of illegal and unethical issues. By outsourcing this process an organization can cost-effectively maximize the time and resources committed to the ethics and compliance area of their corporate governance strategy.

Accessibility, implementation and ongoing maintenance

To effectively capture actionable reports, reporting solutions should be available to those wishing to report any time and from virtually anywhere in the world. Ideally, reporters should be able to use either the telephone or a secure Internet portal. For publicly-traded companies, the Sarbanes-Oxley Act requires that reporting mechanisms must be universally available to all persons wishing to report. The ACFE recommends that all organizations expand their access, citing that “the effectiveness of these reporting mechanisms is significantly higher when they are made available to customers, vendors, and other third parties, not just employees.” Maximizing accessibility—measured both by who has access and how often the system is available—will in turn boost the effectiveness of the system. Most companies find it impossible to cost-effectively achieve a high level of accessibility without the use of a third party provider.

Development of a web intake method is not as simple as creating a web form or activating and email address. Creating a secure web portal system that allows reporters to anonymously report over the web can quickly exceed the time constraints of an organization’s internal resources and de-focus them from other mission-critical tasks. In addition, it is very difficult inspire reporter confidence in any system developed by and operated within the organization. Outsourcing the process to a proven expert can eliminate trial and error, or worse, the chance of exposing a reporter’s identity due to a flawed process. Potentially, such a mistake could expose the organization to whistleblowing or civil legal actions.

Creating and maintaining a state of the art call center dedicated solely to ethics issues can be costly and inefficient. Because of the costs involved with running a call center 24/7/365, even large companies find it difficult to justify making the system available at all times. Compromising the process with limited hours or an understaffed call center can inhibit the reporting process. Outsourcing provides the organization with a quality call center available at all times for a fraction of the cost of an internal solution.

Anonymity and employee trust of the system

The perception of anonymity and trust in the system is imperative when soliciting reports. According to former SEC Chairman Harvey Pitt, “It is important for employees to know and believe that the reporting process is truly anonymous.” Reporters are more likely to trust a third party system to protect their anonymity than one developed internally.