In recent years, employee fraud has become a significant threat to the integrity of many organizations and has significantly impacted businesses financially. An Association of Certified Fraud Examiners (ACFE) survey showed that organizations lose about 5% of their annual revenues to fraud. In addition, it has also eroded trust among employees and clients.
Employee fraud takes many forms, including embezzlement, theft, falsifying expense reports, and payroll fraud. One effective strategy your organization can leverage to mitigate this risk is to conduct a comprehensive employment background check.
Employment background checks are one of the most valuable and cost-effective tools for stopping the problem before it starts.’ With growing concerns about employee fraud, we share insights into what it is and how these checks can prevent it and protect your business.
Understanding Employee Fraud
Employee fraud refers to any dishonest activity by employees to benefit themselves at their employer’s expense. As mentioned earlier, such actions can negatively impact your reputation, reduce employee morale, and cause you to lose customers.
8 Common Types of Employee Fraud
Asset misappropriation: This is the most common form of theft or misuse of the organization’s assets, such as using the company vehicle for personal use.
Payroll Fraud: This encompasses payroll data manipulation to receive unearned compensation.
Expense Reimbursement Fraud: This entails submitting false claims for personal expenses as business expenses.
Financial Report and Fraudulent Accounting Fraud: This happens when an employee records fictitious revenues or falsifies financial reports to mislead stakeholders. Aside from preventing these types of fraud, employment background checks play a vital role in identifying problematic employees and those with questionable behaviours within the organization, some of which include:
Poor Performance: Hiring an employee with a history of poor performance, such as not performing to standard or using office hours for personal tasks, can lead to decreased productivity, increased turnover, and potential risks to your organization’s
Workplace Violence: This happens when an employee causes bodily harm to another within the organization. Candidates with a history of anger management issues are likely to engage in workplace violence.
Absenteeism: This occurs when employees take days off without valid reasons. It contributes to low morale in the workplace and ultimately decreases your organization’s profitability.
Lack of Ethics: Although it is not easily detected, a lack of ethics drives employee fraud in the workplace. You can identify red flags in employees who cut corners, flout rules and regulations, and rationalize unethical behaviours that do not benefit the company.
The Role of Employment Background Checks
Employee background checks involve investigating an individual’s experiences, education, and criminal record to ensure they’re qualified and trustworthy for your open positions. Conducting background checks on potential employees is a critical step in preventing fraud and ensuring those individuals are reliable and have no history of fraudulent activities.
In addition, pre-employment background checks ensure you make informed hiring decisions based on trustworthy data and establish trust between you and your employee. Here are the ways a comprehensive employee background check helps:
Verification of Identity and Credentials
The first step in dealing with employee fraud is to ensure that your potential employee is who they claim to be. Background checks can validate identification documents, educational qualifications, and professional certifications. This verification prevents individuals who intend to use fake credentials to secure a position from later engaging in fraud.
Employment History Verification
Leveraging background verification by confirming an applicant’s employment history can help you spot discrepancies or gaps that indicate dishonesty. Fraudulent individuals often move from one job to another to escape detection, so a thorough investigation of past employers and roles by a reputable background check company can uncover suspicious behavioural patterns.
Criminal Record Checks
Conducting criminal background checks can reveal past criminal activities, particularly those related to fraud, theft, or embezzlement. Hiring someone with a history of such offences significantly increases the risk of repeat behaviour in your organization.
Credit History Checks
While it may not always be applicable, credit history checks can be crucial in roles involving financial responsibilities. An employee with a poor credit history or a high level of debt might indicate financial pressures that could motivate fraudulent behaviour. Credit history checks also provide insight into a candidate’s financial responsibility.
Reference Checks
Speaking with employees’ supervisors and colleagues can provide insights into their integrity, performance, and trustworthiness. Reference checks can often uncover red flags that are not apparent through other background checks.
Social Media Checks
Reviewing a potential employee can provide additional context about their character and behaviour. Inconsistent or suspicious online activity can be a red flag for a possible fraud risk. It is essential to perform background screening before hiring; however, many organizations become complacent with trusted employees.
As such, ensure you conduct random checks throughout their employment duration. Your employees must also acknowledge your right as an employer to conduct random background checks during their time in your organization.
Best Practices for Implementing Employment Background Checks
There are certain best practices you must adhere to to maximize the effectiveness of employee background verification in preventing fraud:
1. Develop a Comprehensive Policy
Create a clear, consistent background check policy that outlines the scope, process, and responsibilities. This policy should comply with relevant laws and regulations, including the Nigerian Credit Reporting Act 2017.
2. Use a Reputable Background Check Service
Partner with a credible background screening company like Workforce Group that provides thorough and accurate reports. At Workforce Group, we adhere strictly to high data protection and accuracy standards.
3. Consistent Application
Ensure you perform background verification consistently across all candidates and employees to avoid biases and advocate fairness. Being consistent helps to establish a culture of integrity and trust within your organization.
4. Educate Employees and Candidates
During your recruitment process, inform candidates about the background check procedure. This ensures transparency, which helps build trust and demonstrate your organization’s integrity.
5. Regularly Update Policies
Review and update your employment background check policies regularly to stay up-to-date with changing regulations, industry standards, and emerging threats. Continuous improvement is vital for maintaining an effective fraud prevention strategy.
6. Post-Hire Monitoring
Ultimately, consider implementing ongoing monitoring programmes for employees in sensitive roles. Regular background screening can help you detect early signs of potential fraud, such as sudden changes in financial status or involvement in legal issues.
Conclusion
All organizations are vulnerable to employee fraud. While it is difficult to eradicate, you can significantly reduce the risks of it occurring, thereby saving your company’s reputation. Implementing comprehensive employment background checks prevents fraud and ensures a secure work environment.
Beyond just compliance, employment screening checks contribute to better hiring practices, reduced turnover, and strategic measures for long-term success. Background checks are a necessity in the Nigerian business landscape.
As such, Workforce Group specialises in helping organizations minimize risks and make informed hiring decisions by providing comprehensive background check services. If you’re looking to improve your employment background check process, get in touch with us today.
