U.S. businesses lose millions of dollars to white-collar criminals every year. The manufacturing sector is especially vulnerable to fraud schemes involving billing, corruption and noncash assets, such as theft of inventory and equipment. Research suggests that businesses that provide a convenient and confidential way for employees to report unethical behavior are more likely to unearth embezzlement and other wrongdoing sooner and suffer smaller losses than those without established “whistleblower” policies.

Proactive fraud prevention and detection controls can substantially reduce a company’s risk of fraud and minimize fraud losses. But all antifraud tools aren’t created equal. In each biennial edition of its Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) has consistently found that tips are the most common method of detecting fraud by a significant margin.

In the 2014 report, the ACFE found that more than 42 percent of frauds were detected by tips. About half of these tips came from employees, and the rest were reported by vendors, customers and anonymous sources. The second most common method of detection was management review, which unearthed fraud in only 16 percent of the cases in the study.

Based on these statistics, it stands to reason that reporting hotlines can be a critical weapon when deterring fraud and minimizing losses. The ACFE reports that organizations without an anonymous hotline suffered about two-thirds higher average fraud losses than those using this prevention mechanism.

Many private companies forgo reporting hotlines because they’re seen as expensive and too formal for closely held organizations. Only about half of the companies in the 2014 ACFE study had a reporting hotline in place, but only 18 percent of companies with fewer than 100 employees used a reporting hotline. However, implementing an effective reporting mechanism can be a powerful way to prevent and detect fraud for companies of all sizes.

Most employees are honest and want to do what’s best for their employers. But the prevalence of anonymous tips — which were the source of about 15 percent of the tips in the ACFE study — suggests that many whistleblowers fear retaliation from co-workers if they speak up against wrongdoers or their allegations don’t pan out. This is especially true in smaller companies where it may be harder to safeguard a whistleblower’s identity.

An important component of an effective reporting hotline is to establish policies to protect the confidentiality of whistleblowers and prevent backlash, including verbal bullying or job loss — especially when employees report on suspected wrongdoing by their superiors. Often it’s beneficial to consult with an attorney to ensure that the company’s hotline and related policies comply with employment laws and other regulations that may apply where you operate.

When selecting a manager to oversee the reporting hotline, choose someone who’s fair and impartial and engenders trust among people inside and outside the organization. Provide your “ethics officer” with authority and training to act on information conveyed through the hotline. Hotlines can also be managed externally by third-party vendors.

Of course, employees need to know about the hotline before they’ll use it. Once you implement a confidential telephone or Internet reporting hotline, conduct a meeting to promote it to both would-be perpetrators and those who might make a report, including employees, clients, shareholders and vendors. The hotline should be convenient to use and available 24/7 in multiple languages.

Distribute guidelines for the reporting hotline when it’s first launched, when you conduct periodic fraud prevention training and when new employees join the company. Also create print and electronic promotional materials for the hotline to display in high-profile locations, such as in the lunchroom and on the company’s intranet site.

Remember, too, that reporting hotlines can unearth other problems besides fraud, such as unsafe working conditions or drug abuse by co-workers. Some companies even set up their hotlines to serve as an electronic “suggestion box” for ways to improve operating efficiencies or offer new product ideas.

Employees are more likely to report fraud if the company acts on tips in a prompt, serious manner and demonstrates a zero-tolerance policy for fraud. The most serious allegations should be reviewed with legal counsel first. Often timely follow-up necessitates the use of an outside forensic accounting specialist who is trained in collecting a thorough and defensible trail of evidence.

When fraud strikes, the company’s ethics officer may feel like he or she is looking for a needle in a haystack. But he or she doesn’t need to act alone. Often company insiders lack experience on how to investigate tips or gather evidence to adequately support a fraud claim. The first step when fraud is suspected is to contact legal counsel. The use of an outside forensic accountant can prevent botched investigations and help your company recover from fraud as quickly as possible.

Forensic accountants can also help management deal with the emotional aspects of a fraud investigation. For example, they can help management minimize disruptions to normal business operations and proactively address rumors that might spread during fraud investigations.

Most important, outside experts are generally impartial and unemotional. These traits can be invaluable when owners of a closely held business feel blindsided by unethical behaviors perpetrated by trusted employees.