What is a whistleblowing system? (FAQ)

We answer the most important questions about whistleblowing systems.
Moritz Homann

More and more companies are installing mechanisms to identify compliance violations as early as possible. Employees and external stakeholders (such as suppliers, customers, or the general public) should be given the opportunity to communicate a company’s unethical and illegal behavior internally in total confidence.

Above all, digital whistleblowing systems are on the rise. Here, we answer the most important questions about this new compliance solution.

A person is standing in front of a laptop out of which a whistleblower is appearing while blowing a whistle.

What are the advantages of whistleblowing systems in general?

An internal whistleblowing system is an early-warning system for identifying and combating maladministration and forms the basis for successful risk management. Informants can pass on information within a fully internal system, keeping the information from leaking to external sources and thus avoiding reputation damage to the company.

Employee feedback is the best way to detect compliance violations. Experience shows that companies and organizations lose around 7% of their annual revenue through fraudulent activities. Evidence of such activity which is passed on anonymously and securely can help to detect a significant proportion of these cases, thereby minimizing financial damage to companies caused by compliance issues. This is confirmed by the study “Whistleblowing Report 2019” conducted jointly with HTW Chur: more than half of feedback received via internal whistleblowing systems uncovered compliance-relevant abuses and misconduct.

Does my company need a whistleblowing system?

When it comes to setting up internal whistleblowing systems, the demands on companies around the world have soared in recent years. In the US, whistleblowing systems that allow confidential and anonymous reporting are already mandatory for all listed US public companies. In Europe, the Directive (EU) 2019/1937 on uniform whistleblower protection officially entered into force on 16 December 2019 – including the obligation for companies in the EU to set up whistleblowing systems. After a series of delays, EU member states finally implemented the requirements of the directive into their own national laws. As a result, companies in the EU now have to have whistleblowing systems in place. Read more about the requirements of the EU Whistleblower Directive here.

Companies often face heavy fines if, for example, a case of corruption arises and the company can be accused of not having taken all necessary and reasonable organisational precautions to prevent the act. Although reporting systems are not yet mandatory across much of the world, they are already exemplary in nature: they strengthen the confidence of employees and external stakeholders (such as suppliers, customers or the general public) in the company, contribute significantly to reputation protection and reduce entrepreneurial risks.

Is a telephone hotline enough?

Telephone hotlines or ombudsmen do not provide complete anonymity. While these methods are important, companies should additionally offer anonymous, digital message channeling. Already existing contact points such as helplines or ombudspersons can usually be easily integrated into professional, digital whistleblower systems. Our EQS Integriy Line, for example, offers such a feature.

Digital solutions offer a simple and secure way of anonymous contact and communication between the whistleblower and the company. Digital whistleblower software is also an excellent data and risk management tool that generates statistics on a wide range of data, such as which country is reporting the most incidents or which types of offenses occur most frequently, leading to an audit-proof trail of information.

In practice, companies often combine several whistleblowing channels to enable all potential whistleblowers to report. The Whistleblowing Report 2021 showed that on average, companies provide two to three whistleblowing channels for employees – for example, general channels such as telephone or email were common across most organisations while the share of companies with specialized digital channels was growing. 

Does this system just produce costs or also results?

Evaluations in Switzerland have shown that a company loses an average around 7% of its revenue due to economic crimes such as fraud, embezzlement or corruption. A company with €100 million in revenue would lose €7 million annually.

If only 10% of these offenses are detected and avoided due to an anonymous digital whistleblowing system, that company would save €700,000 a year. An internal reporting system costs a fraction of this amount per year. Thus, implementing and maintaining a whistleblower system more than pays off.

Will my company be inundated with reports?

Not at all: our experience shows that companies with an internal reporting system receive an average of 8 reports per 1,000 employees annually. So, if your company employs 5,000 people, you can expect about 40 reports a year, or 3-4 per month.

It is also a paradox. Ideally, if a company doesn’t receive any reports, it means that all is well. And yet, as a company, you should do everything in your power to facilitate receiving reports: create a trusting company culture, provide reasonable channels in all relevant languages, and efficiently channel communications within the company. And if then, you aren’t receiving any reports, you’re really doing everything right.

Should we allow anonymous feedback?

Absolutely. The Whistleblowing Report 2021 shows that around half of the initial reports received by companies that enable anonymous reporting are also received in anonymous form. Legal protection for whistleblowers is being gradually improved, and many companies are also assuring that whistleblowers will not face any negative consequences. Nevertheless, whistleblowers find themselves in a situation of greatest uncertainty before their first report: What will my report trigger? Who will read the report, who will be involved in an internal investigation? Do I really not have to fear any negative consequences? The inhibition threshold for whistleblowers is correspondingly high – and the more they appreciate the possibility of being able to report anonymously.

The disadvantage of anonymous feedback is that usually no communication between the whistleblower and the company is possible, making comprehensive clarification of any incident more difficult – especially if there is a lack of important information that can only be obtained through the notifying person. On the other hand, sufficient protection in the form of anonymity is particularly important to many whistleblowers. Therefore, they should be given the option of anonymous messaging, as there are ultimately solutions which make anonymous dialogue possible.

When choosing a whistleblowing system, companies should ensure that communications between a whistleblower and a company can also be conducted anonymously in order to address a larger circle of potential whistleblowers.

Guide to the Introduction of Whistleblowing Systems

How to successfully implement a whistleblowing system in your organisation.

Share this blog post on

Moritz Homann contact image | integrityline.com
Moritz Homann
Managing Director Corporate Compliance | EQS Group
Moritz Homann is responsible for the department of Corporate Compliance products at EQS Group. In this function, he oversees the strategic development of digital workflow solutions tailored to meet the needs of Compliance Officers around the world.
Despite often having a negative image, whistleblowers are not snitches, informants or traitors. In fact, they can actually prove hugely beneficial for companies.