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Hotlines Heat Up Fight Against Fraud

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Not all tips are created equal; two-way communication makes the difference

Occupational fraud costs U.S. businesses more than $660 billion each year, according to the Association of Certified Fraud Examiners. That’s a staggering amount of money. The group’s “2004 Report to the Nation” found that the median loss for insurance fraud ($172,500) was considerably higher than the median losses in industries like banking ($101,000) or retail ($31,000).

Insurers seeking to minimize losses need tools that have proven their effectiveness in fighting fraud.

One of the most powerful fraud detection tools available is an anonymous hotline. The ACFE study found that organizations without an anonymous reporting mechanism lost twice as much to fraud as their counterparts who invited anonymous tips.

The study also found that tips were the leading method for detecting fraud–well ahead of activities like internal audits. Clearly fostering tips is in the best interest of the bottom line.

It is important to understand that all tips are not created equal. The quality of a tip can be improved through two-way communication, which generates more detailed information than one-way communication.

For example, an anonymous note may simply say that Bob is filing false claims. Without Bob’s last name, his location or more information about the false claims, this tip will be nearly impossible to investigate.

An interview conducted by a well-trained, experienced interviewer will delve into details about the activities that will become the basis for an investigation.

The need for an interactive conversation is especially important when dealing with an anonymous caller, because there may never be another chance to gather information.

An anonymous caller often feels threatened and can be emotionally volatile. Because of this, he or she may give information in a disorganized manner and may leave out important details.

An experienced interviewer will help the person organize his or her thoughts and will ask appropriate questions to paint a complete picture of the situation.

The need for two-way communication leads to the issue of 24-hour hotline availability. Nearly half of hotline calls happen outside of regular business hours, and each call deserves equal treatment.

A person who is anxious about making an anonymous tip usually won’t leave a message, because he does not want his voice recorded. If he does leave a message, it is likely to be as brief as possible, which means the information will probably lack detail.

The best way to ensure your hotline yields actionable information is to have an experienced interviewer available 24/7. The risk of operating a part-time hotline is that someone may gather the courage to report fraud and find no one is there to answer the call, leaving the company unable to investigate the situation.

Once a tip has been received, the next critical step is making sure the appropriate people quickly learn about complaints that pertain to their area. Most hotlines receive a wide variety of tips that require different levels of response.

For example, an employee hotline receives reports of employee theft as well as complaints of discrimination. Both are serious matters that need attention, but it is likely the first matter will be handled by security, while the second will be handled by human resources.

One of the most important aspects of hotline operations is the creation of a rule system that determines the dissemination processes for reports based on the nature of the issue reported.

In the case of allegations of management misconduct, there is the additional risk that allegations might be intercepted and covered up. To alleviate this risk, hotline reports should be routed automatically to multiple members of management within the organization.

The report dissemination procedures should also include the conditions that warrant immediate notification when information arrives outside of business hours.

For example, if a caller alleges that a crime is going to occur within 24 hours, company management may want to receive the information immediately, rather than waiting until the next business day.

Deciding which situations deserve escalated notification at the outset of hotline implementation can help the company prevent a crime rather than simply respond to it after the fact.

The best return on investment from a hotline will come from spreading a wide net through communications programs. Ideally, communications should describe the behaviors the company finds unacceptable and then discuss ways to report these behaviors.

As with any good communications campaign, a multimedia approach using signs, Web pages and newsletters is most effective.

Frequent communication about unacceptable behaviors helps to educate the audience and to increase awareness of the hotline. Creating and maintaining strong levels of awareness about the hotline reinforces the perception that the organization wants to know about fraud. This helps people decide to make the call and helps deter illegal activities.

When planning your communications, don’t forget important audiences like suppliers and customers, who may be your best source of information regarding activities like fraudulent claims or kickbacks. Some companies promote the hotline to suppliers by printing the number on payment checks so that all suppliers are aware of the fraud hotline’s existence.

Fraud is a persistent and costly problem for insurers, but the ACFE study demonstrates the usefulness of anonymous reporting in the fight against fraud. By following hotline industry best practices, your organization can create a hotline program that helps you both detect and deter fraudulent activities.

Dave Slovin is the vice president of business development at The Network Inc. in Norcross, Ga., a provider of hotline services.


Because anonymous callers often feel threatened and can be emotionally volatile, they may give information in a disorganized manner and leave out important details.

Nearly half of fraud hotline calls happen outside of regular business hours


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