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Olympus Corporate Hotline Managed In-House Failed to Root Out Fraud

One of the most effective tools for rooting out fraud is a corporate hotline.  So why was the hotline at Olympus Corporation ineffective?  Olympus executives Hideo Yamada and Hisashi Mori were able to conceal $1.5 billion in losses because they also managed the company’s whistleblowing hotline, according to news reports. 

Although whistleblowers are legally protected in Japan by a 2004 law, employees still hesitate to report fraud because they fear retaliation from the higher-ups and being blackballed by colleagues.  In Olympus’ case, the hotline was not deemed independent by most employees and informants were not allowed to relay information anonymously.

Olympus established a compliance hotline in 2005 to handle calls, letters and emails from employees reporting possible violations of law or the company’s code of conduct.  Mr. Yamada strongly opposed and deemed having the hotline run by an external party unnecessary.  While initial tips were accepted anonymously, employees were asked to identify themselves when their tips required further investigation.

“I feel greatly responsible…I’ve made shareholders and employees go through very tough times,” Yamada admitted according to the Wall Street Journal.

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