An Overview of The Use of
Reporting Mechanisms Under
The Federal Sentencing Guidelines


By WILLIAM J. RICHMOND, MBA, MS, CFE; New York, New York

This article first appeared in the Spring 1996 PREVENTIVE LAW REPORTER
©1996 National Center for Preventive Law
©1996 William J. Richmond

Much has been written about using various reporting mechanisms that allow employees to report, without fear of retribution, co-workers' or supervisors' criminal conduct. Suggested reporting mechanisms are answering machines, e-mail, fax machines and hotline services. Although the Federal Sentencing Guidelines do not mandate the use of a specific mechanism, hotlines have emerged as the reporting mechanism of choice.

What the Federal Sentencing Guidelines Mandate

Before discussing the benefits and disadvantages of using a specific reporting mechanism, it is necessary to examine what the government, by way of the Federal Sentencing Guidelines, asks organizations and their employees to do.

Guideline 8A1.2.3.(k)(5) provides that organizations implement and publicize a reporting system whereby employees and other agents can report, without fear of retribution, criminal conduct by others within the organization. Thus, organizations are asked to create an ethical atmosphere that motivates employees to come forward and report misconduct.

Reporting misconduct by fellow employees can create stressful conflicts of interest. Studies reveal that employees want to work for an ethical organization in an honest atmosphere free from fraudulent activities. However, some individuals, regardless of their personal moral code, have difficulty coming forward to report the misconduct of fellow workers.

After all, haven't we all been taught from an early age not to tattle on one another? Haven't we all been told "Mind your own business, he'll get caught some day?"

Yet, organizations ask employees to ignore this cultural taboo by coming forward to report misconduct by fellow employees - fellow employees who may be close friends or acquaintances for many years.

WHAT MOTIVATES EMPLOYEES TO COME FORWARD

Although most employees want an honest work environment, it is unwise to assume that all employees will utilize reporting mechanisms because the company's code of conduct requires it. Employees are motivated to come forward by the type of reporting mechanisms utilized by an organization, not the requirement to us it. Systems that ensure confidentiality and anonymity, especially where employees fear retribution, are necessary to convince employees to come forward. Such assurances are also necessary to meet the Guidelines criteria of establishing an environment of ethical behavior whereby all employees feel a moral obligation to report criminal activity.

Too often, however, the reporting mechanism utilized by an organization focuses on the needs of the organization rather than on the needs of its employees. Organizations choose inexpensive and easy to set up systems. Such procedures do not inspire trust because they cannot guarantee confidentiality or anonymity. An example of an inexpensive and simplistic reporting mechanism that compromises confidentiality and anonymity is the answering machine.

Answering Machines as Reporting Mechanisms

Leaving a message on an answering machine requires recording the caller's voice. This causes fear of identification for employees seeking anonymity. Other employee concerns are that the recording will be reproduced, will fall into the wrong hands or be used for a variety of real or imagined purposes. Common sense suggests that any employee with second thoughts about coming forward will not be encouraged to do so by leaving a message on an answering machine.

Answer machines function unsatisfactorily as reporting mechanisms for other reasons. An employee may feel uncomfortable talking to "a machine." Background noise and poor recording quality can result in garbled data. Unclear speech or the use of technical or slang terms may cause the receipt of misinformation. Callers using an individual's name may be unaware of another person in the organization with same or similar name. Unless the caller spells the name or knows enough to give other identifying data, the call may be useless to any meaningful investigation. And, if the caller fears retribution, they will certainly not leave their name for a follow-up interview.

Since the initial call may be the only contact with the caller, the maximum amount of information to corroborate the allegation must be obtained. However, there is no one to ask follow up questions and the caller cannot be expected to know the type of information necessary to describe the details of the allegation for investigative purposes. Receipt of partial information can frustrate the investigative process and delay the resolution of the case.

The subject of a call cannot be controlled by an answering machine. Thus, callers may leave messages that are inappropriate subjects for investigations of misconduct. Certain issues are more properly handled through regular managerial channels. Messages received by unattended answering machines can also place management in embarrassing situations because there is no one available to effectively respond to a call. Inconsistent and ineffective management of the system leaves workers questioning the credibility of the reporting mechanism.

Voice Mail, Fax Machines and E-Mail

A voice mail system is unsatisfactory as a reporting mechanism due to its similarities to an answering machine. One uses computer technology to record the message while the other utilizes tape. Fax machines and e-mail are also unsatisfactory reporting mechanisms for the same reasons a those discussed above. The use of fax machines, voice mail, and e-mail creates additional anxiety for employees because these devices have the ability of recording the source of the message received on their systems. This fact destroys the employee's trust in the reporting mechanism's ability to ensure confidentiality and anonymity. Use of these devices is unlikely to motivate employees to come forward.

HOTLINES AS THE REPORTING MECHANISM OF CHOICE

Using telephone hotlines as a reporting mechanism is nothing new. Most federal agencies, as well as state and local governments, have some sort of telephone reporting mechanism in place to report employee wrongdoing or to report violations of statutes or agency regulations. In some instances, hotlines offer monetary rewards to the public for useful information.

The idea of a telephone hotline is relatively simple. An individual takes messages from callers reporting wrongdoing. Generally, callers use an 800 number provided by an organization. Employees usually learn about the hotline through advertisements, from employer announcements or from the company code of conduct, which either suggests or requires the organization to provide a hotline service.

Employees call hotlines when a serious problem takes place or when the employee believes a problem cannot be addressed through normal supervisory channels. For example, a supervisor may be a party to the wrongdoing and the employee fears retaliation for reporting the misconduct, or the employee believes the supervisor does not want to be bothered with the complaint. Employees usually report incidents of waste, fraud and abuse or violations of the company's code of conduct. Whatever the motivation, the employee comes forward to report wrongdoing and chooses the hotline because he wants to remain anonymous.

Hotlines have been refined to include internal company operated services or external services provided by outside firms. Whether to use internal or external services generates much debate. Differences regarding how these mechanisms should be operated and who should operate them also arise.

The In-House System

After electing to use a hotline, an organization must decide whether to set up an in-house or an external system. If an in-house system is selected, the organization must determine who will answer hotline calls. Choices include a corporate ombudsman, a compliance officer, in house counsel, a non lawyer from the legal department or a secretary/receptionist trained to accept hotlines calls.

In-house systems usually take live calls during working hours. During off hours, some systems use answering machines. Other systems, especially in firms with twenty four hour work days, assign employees to answer live calls throughout the twenty four hour shift period.

The main advantage of using the in-house system as a reporting mechanism is organizational control - the ability to respond to calls quickly and to give appropriate advice to callers. The ability of a company to control the system and the extent of employee knowledge regarding that control can create problems. Once organizational control is perceived, employees will not feel free to come forward, especially if they already have concerns about reporting wrongdoing. Nothing highlights this more than the use of in-house counsel to control hotline calls.

In-House Counsel as Monitors of a Company's Hotline

Because the attorney represents the company, hotline callers receive notice of potential conflicts of interest. Such advice may make the caller feel as if they are being read a Miranda-type of warning. Thus, the caller may feel uncomfortable in disclosing all they know to the in-house counsel. A caller may also believe that it is necessary to hire an attorney to obtain legal advice when, in fact, it may not be necessary.

The attorney must also determine whether the employee has retained counsel. If so, the attorney must advise the caller that he cannot give legal advice. If the employee is unrepresented, the question revolves around the appropriateness of legal advice over the hotline to an anonymous caller. Consider the risks of offering advice to an unknown caller - is the call from a competitor? Will the call be used later to embarrass or hold the organization liable?

Supervisors, human resource personnel, ombuds officers, compliance officers and attorneys should only give advice, legal or otherwise, to known employees. Employees with legal or ethics questions should be able to contact appropriate personnel who specialize in the areas of concern. A hotline, instituted to avoid liability under the Federal Sentencing Guidelines, should not be used as a guidance counseling service for employees.

Although advice and counseling should not be offered to unidentified hotline callers, nothing prevents a company from instituting an open door policy. The company can provide a mail suggestion box, dispense prerecorded information via an answering machine or encourage employees to seek advice on misconduct or ethical questions. Implementation of these devices allow management to respond to questions in an appropriate manner and should be part of any ethics program.

EXTERNAL HOTLINES

An independent outside firm should handle hotline calls on behalf of an organization. Critics contend that external systems are unacceptable reporting mechanisms because management loses control over the process. Employees, however, consider the outsource hotline as a credible alternative to an in-house service. Employees also find the external hotline a more "user friendly" system.

Outside firms provide a wide variety of cost effective, independent, industry specific hotline services. They can furnish round the clock on-line service and provide confidentiality and anonymity. Most importantly, outside firms can provide experienced professional personnel to answer the calls.

External hotline personnel have knowledge, skills and abilities gained, for example, from years of experience in law enforcement or as Certified Fraud Examiners. Outside firms can also provide personnel who have industry specific experience. Such personnel are familiar with the vocabulary, background information and knowledge of fraudulent schemes employed in particular businesses. Moreover, external hotline personnel are not subject to an organization's politics. They can be relied upon to record allegations objectively and will not "color" the subject of the call in an effort to protect someone they know.

Hotline callers can place an organization at risk. Therefore, hotline calls must be handled with caution. Some callers must be handled with caution. Some callers use an organization's hotline to report misconduct in order to solicit information for financial gain, to obtain a legal advantage or otherwise manipulate the use of the hotline for his own advantage. An organization may be at risk if an unskilled person handles the hotline calls and is unable to read the motives of a caller.

For example, a caller offers to give information vital to a pending investigation. A response to the caller's offer with information regarding the progress of the investigation, the areas of concentration, and if the names of the parties involved, can inadvertently provide the caller with a great deal of confidential information.

Risks in Hotline Use

Beware of outside hotline services that train entry level personnel or secretary/receptionists to answer calls. Training inexperienced individuals to handle hotline calls is difficult. Responding to such calls requires more than answering the phone and taking messages. One call may be the only opportunity to receive critical information. Personnel answering the calls should be experts in fraud assessment techniques in order to maximize the details of the call.

Personnel must respond to calls with mature judgment. They must formulate and make relevant inquires. Knowledge of the elements which comprise the criminal acts or allegations is imperative. Effective communication skills engage a caller and allow more access to important information. Concise, objective and accurate reports provide the basis of the investigation.

CONCLUSION

The Federal Sentencing Guidelines ask organizations to implement a system whereby employees can come forward and disclose misconduct by fellow workers. Most employees want an honest work environment, but may be troubled by having to report illegal or improper conduct. Thus, organizations implementing programs to comply with the Federal Sentencing Guidelines must utilize effective reporting mechanisms that ensure confidentiality and anonymity. No organization wants to be placed in a position where employees tell investigators they knew of criminal activity but did not report it because they distrusted the reporting mechanism or feared retribution.

Thus, management needs to implement reporting mechanisms that work. Systems should focus on providing accurate reports through use of experienced operators while meeting the needs of employees relative to confidentiality and anonymity. Implementation of streamlined, inexpensive reporting mechanisms enabling employees to call an answering machine or contact an in-house attorney may not provide the best results. And, it is unclear to what extent courts consider the quality and effectiveness of an organization's reporting mechanism in determining whether the organization complies with the Federal Sentencing Guidelines. By providing ineffective reporting mechanisms, organizations risk a determination of noncompliance.

Management must also recognize that concerned employees have other choices for reporting misconduct. Employees can choose from a myriad of available government hotlines or be a whistle blower in a qui tam suit. And, in some instances, employees or an organization's agents are required by law or regulation to report misconduct to government agencies.

Significant risks arise when the employee discloses misconduct in a manner that does not include notifying the organization. As a prudent decision, a business must proactively compete with alternative methods available to employees. Due diligence, as used under the Federal Sentencing Guidelines, can best be served and corrective action taken when an organization has the opportunity to respond internally to reports of misconduct.

An organization's decision to use hotlines rests upon the quality and effectiveness of the system provided by an organization.

The following list is provided to demonstrate the extent to which the federal government utilizes hotlines and the availability of such hotlines to report illegal and improper activities

GOVERNMENT HOTLINE NUMBERS
Consumer Product Safety Commission(301) 504-0573
Corporation for National and Community Services(800) 452-8210
Department of Agriculture(800) 424-9121
Department of Commerce (800) 424-5197
Department of Defense (800) 424-9098
Department of Education(800) 647-8733
Department of Energy(800) 541-1625
Department of Health and Human Services (800) HHS-TIPS
Department of Housing and Urban Development (800) 347-3735
Department of the Interior (800) 424-5081
Department of Justice (800) 869-4499
Department of Labor(800) 347-3756
Department of Statecollect call accepted  (202) 647-3320
Department of Transportation (800) 424-9071
Department of the Treasury (800) 359-3898
Department of Veterans Affairs(800) 488-8244
Environmental Protection Agency(800) 424-4000
Equal Employment Opportunity Commission(202) 663-0471
Federal Deposit Insurance Corporation(800) 964-3342
Federal Communications Commission(202) 632-0471
Federal Emergency Management Agency(800) 709-8603
Federal Labor Relations Authority(800) 736-2983
Federal Reserve Board(800) 827-3340
General Services Administration(800) 424-5210
Interstate Commerce Commission(800) 927-0720
National Aeronautics and Space Administration(800) 424-9183
National Credit Union Administration(703) 518-6357
National Labor Relations Board(800) 736-2983
Nuclear Regulatory Commission(800) 233-3497
Office of Personnel Management(202) 606-2432
Office of Special Counsel
    Disclosure Hotline(800) 872-9855
    Whistleblower Protection(800) 572-2249
    Hatch Act Information(800) 85-HATCH
Railroad Retirement Board(800) 772-4258
Securities and Exchange Commission(800) 942-4460
Small Business Administration(800) 767-4460
United States Information Agency(202) 401-7202
United States Postal Service(800) 654-8896



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