Fraud prevention starts with a background check
Fraud prevention starts with a background check
According to the Association of Certified Fraud Examiners, the average business loses 5% of revenues to fraud every year. Smaller companies are particularly vulnerable, suffering higher median losses than their larger peers.
One of the things that put small companies at greater risk is a lack of adequate anti fraud controls, such as anonymous tip lines, segregation of duties and background checks. In fact, skipping background checks on prospective employees is like opening the door and ushering fraud right in.
Need to know
Background checks aren’t foolproof. But they’re capable of revealing many things about potential hires that could eventually affect your business, including:
- Resume inaccuracies,
- Personal financial difficulties,
- Motor vehicle violations,
- Litigious behavior, and
- Criminal charges.
To protect your company from legal repercussions, you must — at the very least — verify job applicants’ work eligibility status, in compliance with U.S. Citizenship and Immigration Services rules. And if you’re hiring in certain fields, such as law enforcement, security, trucking, and child care and elder care, you must perform criminal background checks on all potential hires.
Optional yet valuable
Verifying previous employment is optional, but important. Contact all references to ensure applicants actually held the positions they claim and that their job performance was satisfactory. Also confirm that applicants have the academic credentials, military service record and professional licenses stated on their resumes.
More employers than ever are checking credit reports to learn whether candidates are consistently late in paying bills, are swimming in debt or have filed for bankruptcy. This is critical information to have if you’re hiring someone to work with money. But even if you aren’t, a credit report can reveal something about a prospective employee’s ethics and sense of responsibility. Just keep in mind that financial irregularities might stem from a personal hardship such as prolonged unemployment or illness — so be sure to ask the applicant.
Keep it legal
While you certainly have the right to know if a new hire is going to harm your business, keep in mind that employees’ privacy and other rights are protected by federal law. The Fair Credit Reporting Act (FCRA), for example, requires that employers obtain signed employee agreements before they request any type of “consumer report” — which covers credit reports, criminal background checks and many other types of information gathering.
For a full list of the rules, visit the Federal Trade Commission’s website at http://www.ftc.gov.
Outsourcing the work
It’s not always easy or time-efficient to collect background information about prospective employees yourself. Background screening services — with their teams of researchers and instant access to public databases — are a potential solution. Ask other business owners or your financial advisor for recommendations.
Profile of a perpetrator
If you think you’d know an occupational thief if you saw him or her, think again. Fraud perpetrators often are long-tenured employees who are trusted and well liked by their colleagues and supervisors.
In fact, most perpetrators have no criminal record. What they do have is motive — commonly financial pressures due to gambling addiction, substance abuse, divorce, illness or simply living beyond their means. And they have opportunity. The majority of frauds occur in accounting, operations, sales, customer service and purchasing departments.
