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Service helps companies keep their bottom lines intact
SHERRY KARABIN
Legal News Reporter
Published: December 9, 2014
From a box of notebooks to expensive wiring and financial statement fraud—employee theft can hit a business where it hurts, reducing its bottom line.
The U.S. Department of Commerce says losses can add up to billions each year.
Survey participants in the 2014 Global Fraud Study released by the Association of Certified Fraud Examiners estimated the typical organization loses 5 percent of its revenue each year as a result of fraud.
The median loss incurred in the incidents examined in the annual “Report to the Nations on Occupational Fraud and Abuse” amounted to $145,000, with 22 percent of the cases involving at least $1 million.
On average the illegal conduct went on for about 18 months before it was detected.
Over 40 percent of the frauds in the study came to light as a result of a tip, with employees behind nearly half of those received.
In April 2010, BCG (Brockman, Coats, Gedelian) & Company created Red Flag Reporting, an online service that allows employees to anonymously report theft as well as other problems they observe.
“The service is available 24 hours a day, 7 days a week,” said Raymond Dunkle II, president of Red Flag Reporting and a certified public accountant at BCG & Company. “When an employee, customer or supplier sees unethical activity, they simply log on or make our operators aware of what is taking place.
“After the information is gathered, we contact our client so they can address the problem right away.”
Akron-based Red Flag Reporting was selected nationally as one of the best new tools for accountants, being named among ‘Top New Products for 2012’ by Accounting Today.
Dunkle said Red Flag receives about 3 reports per day ranging from outright theft and coworkers selling methamphetamines out of a storefront to sexual harassment.
“Workers have the ability to upload materials that support their claims of wrongdoing,” said Dunkle. “In one recent instance, a worker was being sexually harassed so she attached the emails to the report to prove her case.”
“Stopping sexual harassment prior to the filing of a lawsuit or rectifying a safety violation before OSHA (Occupational Safety and Health Administration) levels a fine can result in significant savings,” said Dunkle. “It’s not unusual that the money saved by one reporting incident can offset the cost of our service for decades.”
Most of those who use Red Flag Reporting are not BCG clients. They range from international to national businesses including airports, banks, manufacturers, universities, publicly traded companies, professional services firms and nonprofit organizations.
Dunkle said the service has already been licensed to over 20 CPA firms across the country.
While some companies expressed concerns that Red Flag Reporting might lead to false allegations being filed by employees, Dunkle said that has not happened.
“So far, we have only had one client tell us that a report was untrue, yet about 90 percent of those who report problems do so anonymously, which demonstrates the importance of having a hotline like this one.”
He said Red Flag Reporting not only helps rectify theft, it also serves as a deterrent since employees know of its existence.
“Most companies who retain us, put up flyers about the service as well as issuing wallet cards and including its use in newsletters.”
In June 2010, the human resources director at a large resort property said the business decided to use Red Flag Reporting to head off any potentially serious problems.
“We thought it was a nice complement to our company culture which stresses doing the right thing even though it may be hard to do,” she said. “Red Flag provided a vehicle for employees to come forward and remain anonymous.”
The human resources director said introducing the option allowed employees to start a conversation about the importance of reporting misconduct. She said it led to a few reports of thefts, which caused the company to look at its procedures and processes. Other tips from the service resulted in better training for management and leadership, she said.
“We have seven locations and multiple buildings at each location so having a service like this where employees can make us aware of wrongdoing is key,” she said.