Opinion
Piece: Are you recruiting the next Nick Leeson? by Neil Miller
When recruiting or promoting from within, your primary aim is to employ those people who will become a long term investment and benefit to your company; however, it is probably not surprising to find - after many recent media headlines reporting of unscrupulous employee fraud and behaviour - that in many barrels there is a bad apple.
Time-Line: Top Ten Famous Fraudsters
Ivan Boesky US Insider Trader December 1986
Ernest Saunders Guinness Plc August 1990
Asil Nadir Polly Peck International September 1990
Nick Leeson Barings Bank February 1995
John Rusnak Allied Irish Bank February 2002
Jeffrey Skilling Enron Corp April 2002
Bernie Ebbers WorldCom Inc July 2002
Colleen McCabe English Headmistress May 2003
Gerald Smith Orb Group September 2006
Jack Jones It will never happen to me Ltd December 2006
Awareness of the risk is crucial. Even though many companies invest heavily to protect their tangible and intangible assets, they often do not sufficiently check the integrity of those employees who have access to the assets. They often work on the basis that it will never happen to them. However, the cost of conducting employee screening has massively reduced in recent years, which now makes it more attractive and accountable to senior management.
Investigative software exists that automatically checks the integrity of new employees and their CVs to confirm their background for as little as £12.00 per candidate.
The Numbers
It is almost impossible to place a figure on how much is lost to employee fraud in the UK as a substantial proportion of fraud is not detected
or not reported to the authorities. The estimated figure is approximately £14 billion.
One of the key elements of employee fraud is opportunity. A recent Building Society survey found that 70% of people asked would commit fraud if they thought that they would get away with it. Although the vast majority of these may not have the courage or skills to commit fraud, most never get the opportunity. But the opportunity does often present itself, whether through weak financial or regulatory systems.
The important issue here is to define if anyone from these groups poses a threat to your business.
Pre-Employment Screening Programmes
To reduce such risks to employers, basic pre-employment screening (PES) and integrity validation checks on all new employees, along with in-depth due diligence enquiries on all senior executives should be undertaken. PES is a constant process and its proper application will limit criminal opportunity and
behaviour.
A good employment screening programme assists in saving the high cost of removing an employee on grounds of their unsuitability, which is estimated at between £5,000 and £1 million. However, when fraud is involved, these costs can double.
Recent anti-money laundering legislation, corporate governance and compliance regulations implemented by the Financial Services Authority (FSA) have made it increasingly important for organisations to verify the integrity of the people they employ and those with whom they conduct business.
Knowing your staff is as important as “Knowing Your Customer”.
The objectives of a good PES programme should include:
• Recruitment of best candidates
• Confirmation of full history
• Deter or detect unsuitable candidates
• Comply with legal, insurance and regulatory requirements
• Consider implementing similar programmes to cover all categories, such as customers, suppliers, brokers and other agents in whom trust is to be placed
Warning Signs
Additionally, there are many warning signs for employers to consider when undertaking a recruitment campaign. A list should include checks to ascertain whether the prospective candidate has:
· a history of bad debt
· inflated their educational and vocational qualifications
· unexplained gaps in their employment history
· concealed their poor employment record
· falsified data on their application form
Monitoring:
After recruiting and even promoting internal employees, senior managers should continue to monitor their progress to ensure the organisation is not confronted with unpleasant surprises.
This can happen anywhere and in the most unlikely of organisations.
In May 1995, Mr Anthony Williams was found guilty of the theft of over £5 million from one of the Metropolitan Police's bank accounts. Mr Williams had been a long-term employee of the Police having risen through the ranks to become Finance Director with the autonomy to authorise high value cheque payments.
There are further signs that should warn employers of potential problems within the workforce.
Senior managers can look out for “bad apples” by implementing monitoring processes which identify those employees with:
· regular expenditure in excess of income
· a reluctance to answer specific questions
· unexplained absences from the office environment
· a tendency to be excessively secretive
· failure to retain important documents due to poor or inaccurate record keeping
· access to premises, records and computer systems during unusual times
Short-listing and Interviewing
During the recruitment process and when the interview shortlist has been decided, make sure that you ask all candidates to bring with them original copies of all educational and vocational certificates gained. Although these copies could be forged, this may help deter those candidates who may have faked their qualifications.
Furthermore, the interview is also a good opportunity to allow candidates to run through their CV and employment history chronologically, including specific examples of roles, tasks and relationships with previous colleagues.
Conclusions:
As an employer, the responsibility for managing the employee fraud risk must lie with your senior management, who should ensure that there is a sensible foundation of preventative anti fraud programmes and monitoring controls.
In addition, it is important for management to obtain the earliest possible warning when key employees are planning to leave, defecting to a competitor or other activities that could have an adverse impact on the company, customers and ultimately the balance sheet.
Niller Miller is a Director at CSi, providing specialist investigative services, surveillance and corporate security. We also specialise in verifying the integrity of both employees and associates. CSi can quickly verify backgrounds with tiered screening packages for every level of risk, including both volume searches and detailed background research.
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