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Employee screening in the financial industry: what you should know
September 2009, Security Services & Risk Management

A 2007 Pricewaterhouse Coopers survey highlights South Africa as having the highest economic crime in the world, with department figureheads accounting for 17% of all reported frauds that year. A 2009 KPMG Integrity Survey revealed that 74% of companies experienced misconduct, 59% of people say they will do whatever it takes for success and 5% believe they will be rewarded for their wrong doings.

Leigh Yorke-Smith
Leigh Yorke-Smith

Crime escalates in a difficult economic climate. Factors such as retrenchments, slashed salaries and limited job opportunities force people into fraudulent behaviour.

Executive director of South African Fraud Prevention Society (SAFPS), Pat Cunningham, says of the society’s 65 000 people listed for fraud, 11 000 were registered by its members for confirmed fraud in 2008. These facts, coupled with a recent report that the forged matric certificates at the end of 2008 were on the streets two weeks before the official results were announced, are disturbing facts for any potential employer.

While these facts may be disturbing, even more alarming is the fact that despite growing fraud statistics, companies are tending not to report fraudulent behaviour. They suffer from ‘Reputation Risk’, says Trudie van der Merwe, a risk specialist active in several sectors of the economy. Rather than going to court and getting involved in a legal broil, employers opt for the easier route: to get rid of the person and therefore the problem.

Fraudulent behaviour

Erna Penning, general manager of Integra, an integrity assessment and risk profiling company based in Pretoria, believes that greed is one of the most important factors motivating fraudulent behaviour. The other motivation is, of course, need.

25% of people will always lie, deceive and steal. Another 25% will never lie, steal or deceive. The remaining 50% will swing either way: they may either remain ethical or they may be influenced by the first 25% to lie, steal and deceive.

The above was a result of extensive research conducted by an international renowned expert in the field, Professor Gomer from the United Kingdom, highlighting the vulnerability of institutions when it comes to employee ethics. Penning says any risk assessment company worth its weight will make it their core concern to keep the 25% of liars and cheats out of the company they are working with. According to Penning, the positive side of an integrity assessment is the fact that we are able to confirm who the honest employees are and to secure them for future employment in the company. An institution cannot afford to let the unethical 25% have any influence on the vulnerable 50% who may swing either way.

Serious about screening?

Research from Price Waterhouse Coopers says that about 60% of South African companies are doing basic pre-screening tests on work candidates. Jenny Reid from integrity assessment company GriffithsReid says the financial sector does take the matter seriously, incorporating rigid in-house screening such as credibility checks, psychometric testing and polygraphs. Institutions also work in conjunction with third party risk assessment companies who will take over the task of performing such checks and assessments.

Basic credibility checks – are they enough?

“No,” says Integra’s Penning. “Companies, specifically those in the financial sector, can in no way get a full risk profile of a person by simply verifying their ID, criminal record and academic and business qualifications. In order to really validate whether a person is who he claims he is, risk assessment needs to be pushed to a higher level.”

While it may be a costly exercise, both Van Der Merwe and Penning believe that the pay-off of advanced risk assessments for businesses far outweighs the expense. Absa Bank, a client of Integra for 12 years, has benefited enormously from adopting rigid and sophisticated pre- and post-employment screening processes.

“People with ulterior business ethics know that they cannot get through the Absa door because of their pro-active approach to screening. And for Absa it is a win-win situation – it attracts only those with the best ethics, leaving the questionable candidates to other players in the industry. Absa is a true market leader,” she says.

In comparison to recent industry statistics which indicates that 25% of all people lie about their credentials and fail to mention criminal convictions, one can clearly see the success of Absa’s risk profiling. Absa’s success rate in the field of pre-employment screening is evident when in 2009 only 4% of the candidates had previous criminal records and only 0,28% were guilty of fraudulent qualifications. Thus by having an upfront transparent risk profiling process, serves as a deterrent for fraudulent applications.

Screening trends in the financial sector

“The banking sector’s background screening is strong and there are some very good agencies that are able to do the job,” says Pat Cunningham. “However,” he cautions, “with respect to your average employment agency, do not rely on them to do in-depth background screening. You will need organisations that specialise in risk and integrity profiling services.”

Some screening processes are done on-line, for example, a criminal check, person’s name, ID number and drivers licence. Criminal reference checks have to be done through registered service providers. Various credit bureaux will verify a person’s credit status and educational institutions will verify qualifications. This all takes about 48 hours.

Reid says companies in all sectors overlook the importance of sharing information on past employees. The Register of Employees Dismissed (REDS), for example, registers people who have been dishonest. However, because REDS does not represent all types of crime, many fraudsters are not registered, minimising the full value of the system.

Integrity testing

An integrity test is essentially a reference check on the employee’s credentials. People who score high on integrity tests tend to be more than trustworthy, dependable, honest and responsible employees. They are more likely to engage in behaviour that can benefit the company.

Polygraph testing

“The polygraph is an instrument that is used to measure and record certain responses coming from the body when someone is asked questions to indicate whether or not he or she is telling the truth,” according to Polygraph Enquiries of SA.

The polygraph test is a highly effective tool used typically in post-employment situations where further investigation into a matter is required. It is a reactive rather than a pro-active tool, providing information on a situation by indicating a negative reading.

Polygraph tests can be tailor-made to suit the requirements of specific companies and situations. Such tests can be designed to push the threshold by asking tougher questions and raising the questionnaire profile. In post employment investigations, these situational polygraphs are far more effective because the employer is able to get to the core of the issue quickly and decisively.

“The polygraph, if applied correctly, will direct an investigation with positive results,” says Penning.

Psychometric testing

Psychometric testing is a technique that measures education and psychological facts, ie, knowledge, abilities, attitudes and personality traits via questionnaires and tests. The tests involve both the construction of instruments and procedures for measurement and the development of theoretical approaches to measurement. Psychometric theory is applied in the measurement of personality, attitudes and beliefs, academic achievement, and in health-related fields.

Pre-screening employers with psychometric testing is a popular mechanism, however, Penning warns that such methods are merely a guarding device. “Manifested behaviour within the work environment is more important than the predictions of a psychometric test,” she says. “Where an integrity test is efficient, it proactively picks up if a person is a risk, particularly in pre-employment situations. They can also be used in post-employment situations to determine if a suspicious person is becoming a risk.

An effective psychometric screening test will enable a risk analyser to determine – right from the very first screening – whether a person is more likely to engage in negative behaviour that could be detrimental to a company... psychometric tests vary. Different tests/processes are used dependent on the type or level of employee within a company. Integra uses tests that are registered with the Health Professions Council of South Africa and are validated for South Africa.

Voice recognition testing

Whilst not as popular as the above screening methods, voice recognition has proven that it has a place in pre- and post-employment screening. Flashman & Associates offer a voice risk tool, the LVA-I, which is an automated and unbiased integrity/risk assessment system, based on Nemesysco’s Layered Voice Analysis (LVA) technology. The tool is designed to validate the integrity and the values of candidates while maximising the cost effectiveness and timelines of the recruitment process. The system comprises of a unique combination of advanced questionnaire methodology and Nemesysco’s LVA technology. It takes 30–40 minutes to complete.

A standard voice test can give light on issues such as:

* Confidentiality and secrecy.

* Theft from a place of employment.

* Credibility history.

* Bribery and kickbacks.

* Fraud and deceit.

* Drug use.

* Alcohol consumption.

* Gambling.

* Commitment to the organisation.

* Teamwork.

A voice test measures the emotional content in the voice of the applicant. It identifies emotions only, ie, those related to guilt, fear and trauma. The system does not recognise words, therefore ignores what was said in the answer. Applicants can choose their own native language and there is no time limit.

Graphology testing

Graphology is the study and analysis of handwriting, which mirrors the writer symbolically. From the graphologist’s viewpoint, written script is made up of more than 20 indices, such as degree of slant, size, rhythm and spacing between letters, words and lines. All these symbolise different yet interrelated aspects of ourselves. Our physical, emotional and mental characteristics are thus represented.

Some of the advantages of graphology testing:

* Advance insight about each applicant is brought to the interviewer.

* Eliminates the problem of premeditated responses. Any attempts at deception are detectable.

* Gives deeper insight into a person’s whole character than tests based on behavioural responses alone.

What are the legalities?

Employee screening in any industry is a contentious issue and one fraught with legal consequences if not planned and carried out appropriately. If outsourcing to a third party, most risk assessment companies would have a water-tight indemnity clause and insurance against labour laws, trade unions and such like.

Also worth noting is that if an employee signs a job application form which is then sent off to be verified and it comes back as containing false information, the CCMA says the employee will be charged for misrepresentation.

How do you legally get people to undergo screening?

“Providing that an organisation follows the Labour Relations Act requirements there should be no background screening problems,” says Cunningham of SAFPS. “However, be aware that on many employment application forms there is usually a consent clause allowing the prospective employer to carry out background checks. The prospective employee can withdraw that consent clause at any time, which could leave the prospective employer in a bit of a quandary.

“My suggestion is that employment application forms should advise the candidate along the lines that the application will be considered on the understanding that the prospective employer reserve the right to carry out background, reference and other checks on the candidate. Basically it is not a case of ‘I consent’ it must rather be ‘we will’.”

It is also important that both the employer and the employee are able to protect themselves; a basic due diligence from an employer is therefore a vital part of the contract (this is HR policy).

Transparency vital

Any screening process must be open and transparent. Both employer and employee must know all that is going on, plus they must sign consent to the research with full understanding that any information obtained can only be relevant to the workplace.

How do companies protect themselves against collusion?

The issue of collusion is a story of its own, says Trudie van der Merwe. Collusion is an integral part of professional crime; employees can collude with anyone from the security guard to an outside service provider, even a client. Management needs to be proactive as opposed to reactive.

“Any financial institution which is serious about staff integrity will pay close attention to its screening processes in light of collusion issues,” says Erna Penning. “Absa Bank, for example, uses Integra to risk profile all their external guards and this is instrumental in their risk mitigation strategy.”

Internal screening versus outsourcing to a third party

Institutions that have chosen to opt for internal screening can be faced with the problem of internal collusion – if a candidate knows who is conducting the screening procedures within a company, the chances of that candidate colluding with the screener for his gain, is high. Because of these internal risk factors, third party integrity and risk assessment business is growing. Screening has grown into a specialised field now integral to the workings of big organisations.

The importance of post-employment screening

Economies change, people’s circumstances change and so does their risk. Maintaining extravagant lifestyles, greed, debt, financial difficulties and stress are all factors contributing to acts of fraud.

Risk specialists are continually urging employers to shift their reactive approach to risk into a pro-active one. Post employment screening should be seen as a pro-active way to maintain a higher and more productive workforce.

Pat Cunningham, executive director of SAFPS says that while banks are usually vigilant with their screening checks on employees, all companies need to be aware of the sophisticated fraud syndicates whose members often infiltrate an organisation, lying low for some time, then striking when their trust has been gained.

With the huge numbers of impersonations and forged educational certificates on the streets, post-employment screening can determine whether credentials supplied were in fact valid, and ultimately justify why an employee is not performing or is behaving suspiciously. Negative behavioural patterns can also be identified with screening mechanisms.


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