Making a business case for investing in a comprehensive and effective hotline may seem superfluous during a time of low-activity in a company. The same business case is often more effective, however, in the heat of the moment when misconduct and scandals have already begun to damage the company. The sad reality is that most companies are only inspired to chart down a different path in the wake of a damaging event. The scandal at British Telecom where an employee spoke up and was not heard should serve as yet another lesson: proactivity has a far greater impact than having to backtrack through damage control — financially, reputationally and in the eyes of the regulators.
With this scandal and many similar instances, it’s time for business strategies to truly align with a modern compliance and ethics program — one where a chief executive’s growth goals and relationships with third-parties match the reality of global business rather than clash with it, which more often than not, causes chaos.
INSIDE BT COMPLIANCE: THE CASE
More than one-fifth — £8B ($10B) — of British Telecom’s, the national telecoms carrier in the UK, value was lost this week after the 102,500-employee company revealed an accounting scandal at BT Italia was much worse than originally thought. The consequence of inappropriate management behaviour rose from £145M ($183M) in October 2016 to £530M ($670M) in January 2017, following a forensic audit.
Reports indicate that BT’s Audit Committee undertook a review in 2012/13 and found no issues with BT Italia. But yet, according to chief executive Gavin Patterson, “…the company’s management, internal audit, and external auditors failed to spot this over time.”
INSIDE BT COMPLIANCE: THE FRAUD
It appears BT employees at the Italian branch colluded with suppliers, “phantom” suppliers and third-parties to inflate cash flow over a number of years. Management used third-parties to pay suppliers to hide the underlying cash performance of the business. The same tactic was later utilized in the reverse, accelerating the speed that customers appeared to pay their debts. Third-party factoring firms are common in Italy, but this is a prime example of where differing cultures and unexpected practices can expose companies to grave risk, particularly in the area of third-parties.
INSIDE BT COMPLIANCE: THE WHISTLEBLOWER
The clear mismanagement had gone on for several years, and would have continued, had it not been reported by a whistleblower last summer.
The wider legal, governance and other ramifications of this issue, not surprisingly, continues to grow, but against a loss in this case of £8B ($10B). In this context specifically, an effective whistleblower hotline is a compelling investment. Other companies may not, perhaps, face that absolute level of loss. However, the investment case for a hotline is no less compelling, particularly when reputational damage, management distraction and a host of potential remediation costs are taken into account.
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