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.

To be sure, Eckerd’s hotline is not compliant with the Sarbanes-Oxley proposed rule because it does not allow for employees to make their calls anonymously. But Barton says that will soon change: “The way to do it is to assign a case or claim number to the individual,” he explains.

The individual can then call back and reference that same number to learn of any progress in the claim’s investigation. Many times, Barton says, the complaint comes from a lower-level individuals whose lack of full understanding on accounting practices “may lead them to do what they believe is a whistle-blower activity.”

In fact, some experts say it’s not real likely that dozens of complaints will merit review by the company’s audit board, let alone its board of directors. Mair says he’s helped establish ethics hotline programs at eight organizations. So far, he says all but one considers what they’ve done a success. “I think the one that isn’t happy overspent on what they could have done,” he says, noting that the company hired a full-time person to staff the hotline and do the follow-up.

In the end, Mair says, the staff member simply had no reports to investigate. “It was like the Maytag repair man.”

Most companies would love to have that problem.

What Hotline Outsourcers Charge

With the Securities and Exchange Commission set to issue final guidelines on complaint notification systems, some CFOs aren’t sure how much setting up those systems will cost.

There is a growing belief among corporates that merely spending enough to hook up a phone line with a voicemail that has caller-ID disabled will not be enough to satisfy the SEC. And as John Robertson, CEO of hotline outsourcer Edcor, notes, a big part of the expense is just getting the message out. “Communication costs can far exceed the cost of the line itself,” he says.

Anthony Lavalle, CEO of Report It, a third-party provider based in Great River, New York, explains his company’s sliding scale: The system ranges from $5 per employee for smaller companies to as little as 95 cents for businesses with more than 20,000 employees (per employee, per year).

Corporations with 100,000 employees or more can purchase dedicated servers, which are typically tied into longer-term service agreements. It will also be on a per-employee charge but with costs of hardware, software, and setup. The regular hotline annual service agreement, in contrast, can be terminated if the client is not happy.

Edcor’s Robertson claims to be able to have hotline services up for clients in less than 24 hours. Report It is currently promising setup within five days for its hotline service. “But as we get closer to the April 26 date,” says Lavalle, “we may have to extend that if many are waiting.”


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