While no organization is fully immune to fraud and its devastating consequences, employing a variety of prevention strategies across the board can reduce the risk of fraud upending your organization. In previous articles, we have discussed the importance of using internal controls, cultivating a positive workplace culture, and, of course, providing a secure and anonymous hotline for individuals to report fraudulent and unethical behavior. In this article, we will take a look at best hiring practices for reducing your organizations susceptibility to fraud.
Using a robust screening process that goes beyond the completion of a criminal background check can protect your organization from hiring someone who will commit fraud. The Business.com article, “Oh No You Didn’t! 4 Tips for Preventing Employee Accounting Fraud,” by Dachondra Cason, emphasizes the importance of not relying solely on background checks. Background checks do not always produce the most current information. To illustrate this point, the article tells the story of an unnamed company that unknowingly hired an accountant who had recently committed financial fraud in another state. The company completed a background check on this individual, but it came back clean. Once hired, the accountant continued committing fraud, causing the company to lose approximately $400,000. Criminal background checks are valuable, but they must be combined with other measures (as discussed below) to safeguard your hiring process.
While the above anecdote highlights a seemingly rare and extreme case of failing to uncover a job candidates’ history, consider the following statistics from Don’t Hire a Crook! By Dennis L. DeMey and James R. Flowers, Jr., relayed in the Inc. article, “How to Avoid Hiring a Crook.”
- 29% of applicants lie about having higher education.
- 25% lie about their duration of previous employment.
- 23% have used other names.
- 18% lie about criminal convictions.
- 16% have had serious motor vehicle violations.
- 6% supply false Social Security numbers.
Unfortunately, dishonestly is not a rare trait held by job applicants. Given the above information, what can be done to prevent dishonest candidates and potential fraudsters from being hired? In the aforementioned Inc. article, DeMey suggests that at the minimum, recruiters should verify a candidate’s social security number through a credit bureau, complete a criminal history search, and obtain references from prior employers. In relaying this advice, the article reminds readers that doing a criminal history search can be challenging, stating, “Searches can be done only on a local level, since there aren’t any national databases and federal law only permits employers to check criminal histories of individuals from the last 7 to 10 years. DeMey advises to check on the county level.” The article also clarifies the recommendation to obtain references from prior employers, stating, “Although the trend is for prior employers to disclose as little information as possible, 32 states have laws that provide immunity to employers for passing on legitimate information as long as it is without malice.” Checking in with prior employers can provide valuable insight into a job candidate’s history.
In addition to the above recommendations, the Eide Bailly Insights article, “How to Utilize HR to Prevent Fraud in Your Organization,” recommends verifying education and professional credentials, searching the internet for news articles about a candidate’s past employment activities, and completing a credit check in addition to a criminal background check. That said, the article cautions against straying from your organization’s hiring policy. It states, “Although these recommendations are essential in mitigating embezzlement and fraud risks, your organization should follow its hiring policy. If your hiring policy hasn’t been updated in several years, consider working with an employment attorney to review and update your policy manual to today’s standards.” Doing so will allow you to consistently align your hiring practices with best practices for fraud prevention.
The Eide Baily article also emphasizes that proof of careful hiring practices can help your organization avoid legal responsibility in the event that an employee does commit fraud. According to the article, failure to complete background checks can lead to negligent hiring, which is defined as “a legal doctrine that states employers are responsible for the destructive actions of employees when due diligence – such as conducting background checks – would have revealed the employees’ propensity to commit such actions.” In other words, it is an employer’s responsibility to make careful hiring decisions.
In summary, a thorough hiring process that includes background checks, verification of social security numbers and credentials, and research into a candidate’s employment history, can lower the risk of hiring a fraudster. Add careful hiring practices to your organization’s arsenal of fraud prevention strategies.