Playing the Numbers: Employee Fraud

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Employee fraud

Bill Bart, the owner of a commercial heating, air-conditioning and electrical company in Scottsdale, Arizona, noticed that revenues were consistently falling short of the marks he had reasonably expected. Bill was repeatedly dismayed by the final figures and was uncertain of what could have caused the strangely marginalized profits. In hopes of gaining insight into the problem, Bill asked his wife, who is a banker, to review the company bank statements. What she found was the mysterious disappearance of over $48,000 from the company books.

Episodes such as these are not uncommon. In fact, SunTrust reports that 71% of business owners claim to be victims of fraud or know of similar businesses that have been affected by it.

When a business such as Bill’s does not have the controls in place to enact necessary security procedures they open themselves up to employee fraud. In 2006, the Association of Certified Fraud Examiners (ACFE) reported that small businesses were the hardest hit, with a median of nearly $200,000 in losses. Close behind were midsized businesses with $179,000 lost. Much of the risk associated with fraud stems from a lack of a procedure for carefully vetting prospective employees prior to hire.

In Bill’s case, the perpetrator who had been his bookkeeper, was defrauding the company upwards of $12,000 a month to bolster her gambling addiction. She had been cashing company checks and afterwards changing the recipient and dollar amount in the company recordkeeping software. Bill had known the bookkeeper from a previous job and trusted her, but no background check had ever been completed.

Unfortunately many businesses do not, for various reasons, have a system of checks that prevent these types of fraud. The prevailing error is that there is too much trust put in one’s own institution or what they assume to be true about a job applicant based on limited interaction or past work experience. Often businesses riskily omit a background check from the hiring process in the interest of time and money. However, this hire-and-hope method is not proving effective.

After an investigation, Bill’s unscrupulous bookkeeper was found guilty on one count of theft over $25,000 and ordered to repay Bill $200 a month over twenty years. But the small reparation did not restore Bill’s faith in hiring without first checking an applicant’s background. He has since introduced background screening as part of his hiring process.

Given the frequency at which businesses are defrauded, background checks have become increasingly important. It is not in the best interest of employers to rely on information included in a resume either, as an estimated 43% contain one or more significant inaccuracy.

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HireRight is a leading provider of on-demand employment background checks, drug and health screening, and electronic Form I-9 and E-Verify solutions that help employers automate, manage and control background screening and related programs.

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