Outsourced whistle-blowing services gain momentum

Advisory groups in India have been quick to sense business opportunities in all kinds of areas. So, if corporate governance issues are increasing by the day, it’s not surprising that they are finding ways to tackle this by launching independent services.

The latest to jump on to the bandwagon is Ernst& Young (E&Y), which has started a new whistle-blowing service in order to monitor irregularities in Indian companies. E&Y's independent hotline will receive all complaints and even anonymous calls on irregularities in companies which register themselves for the service. After going through the issues, E&Y officials will send the information back to the whistle-blower.

KPMG is the only other agency that is running independent whistle-blowing services in India. A global fraud survey conducted by the Association of Certified Fraud Examiners (ACFE) in 2010 discovered that 40% of fraud cases were detected through tips given by people, 50% of whom were employees. 67% of these cases were communicated through anonymous tips reported via the organisation’s hotline.

However, in India, employees still are hesitant about complaining through internal hotline services, as companies often fail to keep details of the complainant a secret."Though companies already have their own whistle-blowing services, employees hesitate to use such services and prefer independent one s where entire details of the complainant are kept secret," said Arpinder Singh, Partner & National Director— Fraud Investigations & Dispute Services, Ernst & Young India.

According to him, E&Y is in talks with eight mid-sized companies in India to sign contracts for availing of the whistle-blowing services. The service charge will be about Rs 10 lakh a year for an organisation with 4,000-5,000 employees. Hotlines are the number 1 channel for fraud detection and account for over 30% of all the tips, and in Asia, 43% of all fraud is captured through a hotline, Singh added.

E&Y service provides 24/7 availability of hotlines as 40% of all calls take place outside business hours. They also have multilingual capabilities.

Rohit Mahajan, executive director, Forensic practice, KPMG India, said, “Regulators have not mandated whistle-blowing services for Indian companies, though these are mandatory for listed companies in developed economies. However, as part of good governance perspective, many Indian companies prefer to set up such services internally or outsource them to third parties.”

Currently, KPMG has about 12 clients which have outsourced the service. According to him, private equity players, who hold controlling stake in portfolio companies, prefer to launch whistle-blowing services in these companies as part of good practices.

I Unnikrishnan, Managing Director, Manappuram Finance, said the company's credibility and reputation increased after it outsourced whistle-blowing services four months ago. “Whistle-blowing serves as a deterrent for improper conduct among employees,” he added.

Vidya Rajarao, executive director and national leader, forensics services, PwC India, said: "Due to a global increase in anti-bribery sanctions, there has been a greater awareness of forensic services among companies, especially companies that are working across jurisdictions. With the enactment of the UK Bribery Act, there is a heightened awareness among global companies in proactively addressing issues such as fraud and corruption rather than reactively responding to allegations.

PwC also assist its clients in working with them to set up a multi-modal (telephone, e-mail, fax, post box) 24X7 whistle-blowing mechanisms that is compatible in multiple languages.

Sandvik India, part of Swedish engineering group - Sandvik with presence in 130 countries, has outsourced whistle-blowing services in India.