Since the United States introduced the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, the world has seen a rise in regulations designed to keep businesses accountable and foster a culture of compliance among employees.
According to the 2016 Annual Report to Congress on the Dodd-Frank Whistleblower Program, the programme has been successful, with the United States Securities and Exchange Commission (SEC) receiving over 3121 phone calls from members of the public in the fiscal year 2016, and over US$111 million being awarded to 34 whistleblowers since the programme’s implementation.
In the Asia-Pacific region, the number of whistleblowing tips the SEC received from China rose from ten in 2011 to 27 in 2012 and up to 52 by 2016, with China being the third-largest source of tips to the SEC outside of the United States, behind the United Kingdom and Canada. Despite these improvements, the region still falls behind when compared to its global counterparts.
A WHISTLEBLOWING CULTURE CAN REDUCE LOSSES AND FRAUD, AND SOMETIMES PREVENT THEM FROM HAPPENING AT ALL
The need for businesses to adopt a culture of compliance is clear. According to the 2016 Report to the Nations on Occupational Fraud and Abuse (Global Fraud Study), the median loss from fraud for Asia-Pacific companies is US$245,000 per case – and that amount does not include potential loss of shareholders or reputational damage. The report, based on 2410 respondents globally, showed that early intervention in fraud cases tends to lead to lower losses since, on average, the longer the fraud occurred, the greater the losses incurred.
The Global Fraud Study showed that 51.5 percent of tips about fraud came from employees, with the remaining coming from anonymous sources, vendors or customers. Considering employees have a first-hand view of the innerworkings and potential wrongdoings in a company, it is not surprising that such a large percentage of tips came from employees.
The Global Fraud Study also confirmed that more tips are reported with a hotline (47 percent) than without (28 percent), demonstrating that if employees do not have access to a secure and anonymous hotline it is less likely that they will report, especially in Asia-Pacific countries such as China, Korea and Japan.
The results of the study imply that people are less likely to commit misconduct when a hotline system is in place because of the fear they would be caught. The survey results further indicate that people are more likely to report when multiple channels are available, such as through phone, email and a website.
BUILDING A COMPLIANCE CULTURE THAT ENCOURAGES MISCONDUCT REPORTING
The EY Asia-Pacific Fraud Survey 2017 showed that many people working in companies in the Asia-Pacific region are aware of fraudulent activities taking place in their workplace but have not reported them.
The lack of an anonymous reporting mechanism could be a possible reason for why more people do not speak up. From Fortune 500 companies, 100 percent of United States–headquartered companies and over 80 percent of European companies have a hotline system in place, yet only 40 percent of Asia-Pacific-headquartered companies do.
In the Asian culture, reporting concerns against superiors is tantamount to betrayal of trust. To reduce this cultural obstacle it is important for companies to not only have a reporting mechanism in place, but to also train on fraud risks and have a written code of conduct that clearly states what employees’ obligations are when it comes to reporting misconduct.
Another possible reason for the low reporting rate in Asia is the perceived lack of accessibility due to language barriers. Many global companies put hotline mechanisms in place, but with a different telephone number for each region. This can be confusing for overseas reporters, especially when English is not their first language, and many will not report because of this.
CAN A MOBILE APP ENCOURAGE PEOPLE IN THE ASIA-PACIFIC REGION TO SPEAK UP?
With smartphones becoming an essential aspect of everyday lives for most people, new mobile services and phone capabilities continue to change the way these devices are used in various corners of the globe.
Over 70 percent of web browsing is now done from a mobile device, and, in a 2015 study of smartphone users by population, South Korea and Australia were the highest-ranked countries, with 88 percent and 77 percent respectively.
This changing environment gives an insight into why this personal communication channel would be perceived as private and secure by potential whistleblowers in the Asia-Pacific region.
According to a July 2017 Food Navigator article, whistleblowing efforts have helped to improve food safety standards in China thanks to an app called ‘Woodpecker’, which allows consumers and food-industry workers to report food safety issues and offers financial rewards for doing so. In just the first quarter of the financial year over 50 alleged violations had been reported and a total of RMB52,600 (US$7750) had been awarded to the individuals that had made reports. According to official records, in the first half of 2017 more than 105,000 of the approximately 256,000 food businesses operating in Shanghai were inspected, resulting in 1697 violations and RMB14.3 million (US$2.1 million) worth of stock being confiscated. The hotline has reportedly processed over 50,000 complaints this year, demonstrating people’s willingness to use the app for whistleblowing.
In order to improve a culture of compliance in the Asia-Pacific region and encourage more individuals to report tips, employees need to have access to a secure and anonymous whistleblowing hotline, in their own language and on a modern technology platform.
By catching fraudulent activities early, companies can mitigate or entirely prevent losses, preserving their business operations and integrity, and employees can be assured they are part of a company that promotes a strong compliance culture.