Dial ”M” for Malfeasance

New regulations will require companies to put in complaint systems for employees. But CFOs say setting up good lines of communication can be a real pain.

Hotline Hang-ups

One complication Barton and others may encounter: potential conflicts of interest. Companies must have a reporting system that allows for confidential and anonymous reporting by employees. In addition, they must maintain an appearance of independence once those complaints come through. “There must also be frank, open and clear channels of communication so that information can reach the audit committee,” says the proposal.

Indeed, concerns over independence and anonymity have some employers turning to third-party providers to at least manage the recording requirement in their complaint notification systems. Certainly, there’s no shortage of providers to turn to. These are halcyon days for outsourcers of corporate hotlines, and in recent months, a number of vendors (including Edcor, Report it, and The Network) have started aggressively hawking their services.

Complaint notification system outsourcers also like to point to data from The Association of Certified Fraud Examiners showing that organizations with fraud hotlines cut their fraud losses by approximately 50 percent per scheme. But critics warn that setting up a hotline through a third party doesn’t fully get employers off the compliance hook.

They’re right. An outsourcer who receives a legitimate complaint from an employee must still pass that information on to somebody at the company — typically, the company’s compliance officer. Depending on the setup, a member of the internal audit or general counsel’s staff may also be assigned to investigate and relay a validated claim to a company’s audit committee for review.

Some corporate executives also doubt that third-party hotline operators will be able to handle complex allegations coming from disaffected finance workers. Some believe relatively low-paid operators will not be able to always ask the next logical question that would make an anonymous caller’s complaint complete for investigative purposes. Vendors deny that charge. But it’s also uncertain — if calls are truly anonymous — how corporate officers will be able to follow up on an inconclusive report from an outsourcer.

What is crystal clear, however, is that any complaint notification system works best if the notifier of a complaint trusts the system. Says Lesley Ann Skillen, a partner at law firm Getnick & Getnick: “The key to making one of the hotlines work is to make employees feel comfortable about making a report without fear of retaliation or retribution.”

Get-Out-of-Jail Fee Card

That’s no small task — particularly given recent headlines.

In August 2001, for instance, Roy L. Olofson, then a finance vice president at Global Crossing Ltd., reportedly sent a letter to the telco’s top ethics official alleging that the company swapped fiber-optic capacity with other carriers to artificially boost revenues. Olofson was laid off three months later in what the company insists was part of a companywide reduction. Global Crossing’s management also claims that the VP of finance sought a large payment in exchange for his silence on the subject, a claim Olofson denies.

Regardless, the Olofson case would seem to confirm what some workers already suspect: whistle-blowers often end up on the street. Certainly, Sherron Watkins’ testimony that former Enron CFO Andy Fastow tried to get her fired for going directly to CEO Kenneth Lay with her now-famous E-mails may make comfort a bit of a hard sell. Says Skillen: “That doesn’t give everyone a wonderful feeling for going over the head of their bosses and reporting something to senior management.”


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