Whistleblowing has clear impact on fraud, US study finds

The typical US organisation loses 6% of its annual revenue to fraud, according to the Association of Fraud Examiners’ 2004 Report to the Nation on Occupational Fraud and Abuse, which is based on 508 cases and total losses of US$761 million. If the percentage is scaled by US Gross Domestic Product for 2003, it translates to some US$660 billion. By far the most common source of initial detection of occupational fraud – in 39.6% of cases – was a tip-off, principally from employees. “Our data strongly supports Sarbanes-Oxley’s requirement for audit committees to establish confidential reporting mechanisms,” note the report’s authors. Of the frauds perpetrated by owners and executives, which tend to be the most damaging, just over half were exposed by a tip-off. The median loss of US$56,000 in organisations that operate anonymous whistleblowing lines proved to be less than half that suffered by those without clear reporting procedures.