Safeguarding Your Organization from Fraud: The Power of Background Checks
In an era where technology like AI enhances fraud detection and prevention, businesses must not overlook the foundational step of conducting thorough background checks. This International Fraud Awareness Week (November 17–23, 2024) highlights the importance of proactive fraud prevention strategies, with background checks playing a critical role in safeguarding organizations against fraud, particularly for positions of trust.
Who Commits Fraud? Recognizing Patterns
Understanding the common traits of fraudsters helps organizations identify high-risk individuals during hiring. According to the Association of Certified Fraud Examiners (ACFE):
Fraudsters often hold trusted positions, providing them access to critical assets.
Two-thirds of fraud cases involve managers or executives who know how to bypass internal controls.
Men commit 74% of fraud cases.
Higher education levels, longer tenure, and delays in fraud detection correlate with higher fraud losses.
These insights emphasize the importance of enhanced background checks for individuals in senior or sensitive roles to mitigate risks effectively.
The Consequences of Neglecting Background Checks
A notable example of how failing to verify credentials can lead to fraud occurred in South Australia in 2019. Veronica Theriault secured a Chief Information Officer role with a $270,000 annual salary by falsifying her CV, providing fraudulent references, and even using a supermodel’s photo on LinkedIn. During her brief tenure, she misappropriated $54,000, including securing an unqualified contract for her brother.
This case underscores the necessity of not just conducting background checks but also scrutinizing the results for inconsistencies or warning signs.
Red Flags: A Call for Action
ACFE’s 2024 report revealed that 84% of fraudsters had no documented fraud-related criminal history. This does not mean they are beyond scrutiny. Common background check oversights include:
Failing to verify professional qualifications or employment history.
Ignoring references or accepting them at face value without cross-verification.
Dismissing minor red flags, such as gaps in employment or discrepancies in credentials.
Shockingly, in 16% of fraud cases where a background check was conducted, warning signs were ignored, resulting in fraudsters being hired anyway.
Taking a Risk-Based Approach
Organizations must adopt a tailored approach to background checks, focusing on high-risk roles such as senior executives, finance, IT system administrators, and procurement. A robust screening process should include:
Verification of Professional Credentials: Independently confirm degrees, certifications, and employment history.
Criminal Background Checks: Ensure the candidate has no history of fraudulent or criminal behavior.
Public Records Review: Search for litigation, bankruptcy filings, or media mentions that could indicate prior misconduct.
Reference Checks: Speak to former colleagues or supervisors to gain authentic insights into the candidate’s character and work ethic.
Proactive Fraud Prevention
Implementing background checks is just one part of the equation; acting on the results is equally crucial. Organizations must:
Establish clear protocols to investigate and act on red flags.
Foster a culture of diligence and accountability during hiring.
Continuously review and update background screening policies to adapt to evolving risks.
Conclusion
Fraud prevention begins with vigilance in the hiring process. By leveraging comprehensive background checks and acting decisively on the findings, organizations can minimize fraud risks and protect their assets, reputation, and stakeholders. As the adage goes, an ounce of prevention is worth a pound of cure—a lesson every organization should embrace to safeguard its future.