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Using background checks to avoid employee fraud

Employee fraud can have devastating consequences for a business and as concern over disgruntled employees committing fraud rises in 2011, employers are looking for different ways in which to combat internal fraud.

According to Johan Fourie, quality assurance services manager at Lion of Africa Insurance, current economic conditions prevailing in 2011 could have a severe and negative impact on employee morale – which is one of the main contributors to increasing incidences of employee fraud.

Corporate SA is losing an estimated R150 billion annually to insider fraud, according to Steven Powell, head of forensics at law firm Edward Nathan Sonnenbergs.

The volume of background checks carried out by EMPS, SA’s oldest screening and vetting company increased by 18% in 2010, despite an obvious slowdown in recruitment, demonstrating a tightening-up in employee screening. While it is crucial to deal with this issue in the recruitment process, to truly safeguard against insider fraud HR needs to maintain an element of screening throughout the employment contract.

Verify candidate’s identity

Proper identity verification is vital to the employee screening process. Checking that a candidate is who they say they are should always be the starting point, as background checks are ineffective if you are not even checking the correct person. Candidates can avoid criminal record checks or reference checking by omitting addresses or providing false information. If they are new to the country, thorough background screening is needed to examine their record in previous countries of residence.

Get candidate’s consent

Proper background checks are designed to protect employees as much as the business, so it is essential to gain their permission. EMPS research shows that 10-15% of candidates drop-out when they are aware that background checking is carried out. This shows the strength of good procedures in deterring potential fraudsters.

Carry out thorough checks

Conducting a full CV verification process looks into both the verification of data presented by the candidate and in-depth scanning of criminal and credit standing. Financial background can highlight any red flags, such as bankruptcies or other financial stress. These can provide warning signs into a candidate’s suitability, although be mindful of jumping too readily to conclusions. The key here is just knowing and being aware.

Do not limit checking to employee levels

There are a few common misconceptions when it comes to screening. Some believe that the more senior a position, the more background checks are required. But it can often be some of the most junior employees who are the biggest threats in terms of fraud, as they have less loyalty to the firm and less to lose, with access to sensitive customer information. Others believe that senior positions do not need to be checked as thoroughly, as these people are higher calibre. The rule is to check everyone as thoroughly as possible, regardless of level, fraudsters are from all employment levels.

Dealing with a negative background check

The response depends on the severity of the offence. In some cases, a criminal conviction may be highlighted for a relatively minor offence, such as a driving offence. In this situation, the employer can make a judgment call. More serious convictions, however, may bring the integrity of the candidate into question or have an impact on the role they have applied for. In these cases, appropriate steps should be taken to mitigate any risks they may pose to other staff or to the organisation’s reputation.

On-going background screening

Lastly, while pre-employment screening will significantly reduce the threat of a poor hiring decision, an on-going employee vetting strategy can play a vital role in combating insider fraud. On-going background screening enables companies to identify changes in an employee’s circumstances, allowing them to make a better assessment of the risk they may pose. Just as background screening at the application stage can deter risky candidates, an on-going vetting process can highlight existing staff who may be most vulnerable to committing employee fraud.

Kirsten Halcrow

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