Question

You work for a small manufacturing firm, where it is clearly too expensive to have proper segregation of duties. Because of this lack of control, management knows that opportunities exist to perpetrate fraud within the company. Management is particularly concerned with possible collusion between purchasing agents and vendors because of the relatively small size of the company and the fact that a single purchasing agent is often solely responsible for a vendor's account. Management knows now that a lot of money can be saved by proactively preventing fraud and not just acting on a reactionary or crisis basis. They have started to establish an open-door policy where all employees are encouraged to talk about pressures and opportunities faced while on the job. Management also wants to establish a hotline where employees can report suspicious activity. Questions: a. Is an employee hotline necessary? b. Is this sort of whistle-blowing ethical? c. What can management do as they establish this hotline to encourage employees to actually use it?

Answer 1

a) Yes, the employee hotline necessary as segregation of employee duties is not possible and expensive. It is very difficult to detect fraud activities and catch the culprit. Moreover, if frauds are not stopped, the firm could have to lose lot of money and control over operation. So, to have an early knowledge of fraud is important for management and thus, the hotline for employees is essential.

b) Yes, the sort of whistle-blowing is very much ethical as the fraud activities can be well caught a the work place only, so employees can detect the frauds early and easily. The whistle-blowing is ethical for both the management and the employees as frauds could made the firm to lose money which can even close the firm. So, the detection of frauds by employees through early whistle-blowing is essential.

c) To use the hotline to pin-point the frauds by the employees, the management could initiate a monetary appreciation scheme for the true successful fraud whistle-blow at the hotline so provided to the employees. The management could make the employees realize that the frauds could hamper their jobs and living.