Section 301(4) of the Sarbanes-Oxley Act (“SOX”) requires Audit Committees to establish procedures for the collection and resolution of employee complaints covering an extremely broad range of financial and accounting control issues. The system must allow for anonymous and confidential submissions.

Whistleblower reporting systems are also widely considered a best practice for nonprofit organizations. Form 990 now includes disclosure whether the nonprofit has adopted a whistleblower collection mechanism. Many private companies as well are setting up Whistleblower hotlines in order to obtain both financial and non-financial related complaints (i.e. human resources, ethics violations, and other employee complaints).

The following are pitfalls to avoid when setting up a hotline:

• Most internal whistleblower solutions (when either collecting or investigating complaints) provide an unacceptably high risk of encouraging retaliation claims. Any money saved by using internal resources is immediately lost when the first retaliation claim occurs.
• By relying on a single collection vehicle (phones), “hotline” services provide an incomplete and mechanical solution that unnecessarily constrains communications.
• By using inflexible and overly simplistic scripts/forms, most outside vendors fail to collect important information.
• By using unskilled personnel to collect the complaints, uninformed or prank calls waste investigation resources, rather than being quickly identified for what they are.

For more information, see www.fulcrum.com

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