Stop Fraud at the Door Before it Enters your Organization

Keep out the bad apples by doing thorough background checks on potential hires.

Posted by Joe Gerard in Corporate Security, Human Resources, Information Security on May 10th, 2011

Making a bad hiring decision is sometimes only a minor inconvenience and a waste of time, but in many cases, it can leave you vulnerable to workplace fraud. One bad apple can wreak havoc in your organization and open you up to theft, legal trouble and even bankruptcy. In today’s litigious environment, it’s more important than ever to stop fraud at the door by conducting background checks on potential employees before making a job offer.

We interviewed Tracy Coenen, forensic accountant and fraud investigator, on the strategies for hiring people with high ethical standards as part of a company’s fraud prevention program.

“The more sensitive the job or the higher the position, the more checking we want to do,” advises Coenen. “The most dangerous types of fraud for a company’s bottom line are those committed by upper management because they are typically of a size that can put a company into bankruptcy or could lead to the loss of a very large customer.” The degree of background investigation to be carried out on a potential employee, therefore, should reflect the level of position in the company and the potential for damage.

Start with the Basics

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The first checks Coenen advocates are the basics: “Confirm past employment, confirm education that they claim they have, actually call references,” she says. “I can’t tell you how many times I’ve heard of people putting references on their resume without checking with the person and the person actually has negative things to say.”

Depending on the level of the job, Coenen also advises doing criminal, civil and bankruptcy checks. Do they have any past criminal cases or convictions? Do they have any ongoing civil cases? Are they being sued? Have they declared bankruptcy? Financial pressure is one of the biggest risk factors for fraud, so it’s important to be aware of any potential problems in this area.

Calling Previous Employers

Coenen stresses the importance of calling an applicant’s previous place of employment despite concerns that previous employers sometimes won’t release information. “They’re afraid of getting sued so they won’t say anything. So those doing the hiring sometimes don’t make those phone calls because they assume they’re not going to get anything valuable out of them,” she says. “I think it’s important to still make the phone call because that one time you do get valuable information it will be so worth it.”

By asking general questions about the person, the type of job responsibilities they had and how they were to work with, you might be able to gather valuable information about how that person will fit into the culture at your company. Sometimes a perfectly good reference can reveal extra information about the person that can help you to make the right hiring decision.

Should you always discount an applicant who has a bad reference? Look at this the same way you look at finding fraud in a company, says Coenen. “If you find one risk factor when you look into a company, I don’t think it’s too much to get excited about. If everything else checks out and this is the only thing that comes back negative, I would tend to discount it a little bit. If there are several other serious questions about the employee, then I think that would be the deal-breaker for me.”

Do your Homework

In her book, Essentials of Corporate Fraud, Coenen says: “Although most employees who commit fraud have no prior record of fraud-related charges or convictions, that doesn’t mean personnel screening procedures should be scrapped altogether. Because reasonable background checks and verifications can weed out some higher-risk employees, they are the key components of fraud prevention.”

Joe Gerard
Joe Gerard

CEO, i-Sight

Spend my days showing off the i-Sight investigative case management software and finding ways to help clients improve their investigations. Usually working with corporate security, HR & employee relations, compliance and legal teams.

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