Tips To Prevent Employment Fraud Through Background Screening

Organizations of all shapes and sizes throughout the world struggle with the serious issue of employee fraud. Even though you believe that all of your employees are devoted to the company and striving for its success (most of them definitely are) but there are employees that commit fraud for a variety of reasons.

For business owners, losing such a sizable sum of money can be disastrous. Employee fraud may potentially result in bankruptcy if it is not immediately handled. In addition to financial losses, these accidents’ long-term effects result in a significant decline in public confidence, harm to the brand’s reputation, credit loss, and low employee morale.

Read on to get tips for preventing workplace fraud through background screening.

Employee Fraud: How Bad Could It Be?

Employee fraud is when an employee commits a fraudulent act such as robbing or lying to their employer in order to gain a financial or personal advantage.  The majority of business owners are unaware of how frequently employees commit fraud.

46% of firms reported having encountered fraud in the previous 24 months, according to PwC’s Global Economic Crime and Fraud Survey 2022. When considering the danger of fraud, most business owners focus on external threats, yet according to a PwC study, 31% of fraud cases had internal players.

Collusion between internal and external parties led to an extra 26% of the total. In other words, employees were involved in 57 percent of the fraud incidents that PwC looked at.

There are frequent indications of ongoing employee fraud. Here are five cautionary signs to watch out for:

  • A worker’s lifestyle abruptly diverges from their pay. A worker suddenly living considerably beyond their means may be engaging in fraud.
  • A worker is being evasive. An employee’s severe reluctance to discuss their workflow or have someone else look over their work could be a red flag for fraud.
  • You frequently get suggestions or grievances about a specific employee. Although it might seem obvious, the ACFE reports that tips are responsible for the discovery of 42% of employee fraud cases.
  • Accounts receivable seems to have a lot of inconsistent information. Unusual increases in expenses, supplies, or employee reimbursements; excessive or unexplained cash transactions; unreconciled bank account statements; sudden activity in accounts that had been dormant previously can all be signs of fraud.
  • An employee feels that they are exempt from the regulations. When you have the required internal controls in place but a worker disobeys rules or proper procedures.

Even while many companies strive to establish trustworthy bonds with their staff, it’s acceptable to be dubious if you start to notice these warning signs. Early detection of employee fraud can lessen the impact on your company.

Half of the occurrences of employee fraud that are identified as a result of tips involve employees. You may reduce your losses and discover fraud earlier by setting up a tip hotline.

Most Common Types Of Fraud By Employees

–       Asset Misappropriation

Using firm assets for purposes other than what they were intended for is one sort of asset misappropriation. This could entail using the corporate car and gasoline card for personal errands, carrying home company goods, or taking your family along on a business trip for which the employer will pay.

Asset misappropriation also includes taking money from the business before it is recorded in the accounting software. This includes overcharging clients and keeping the difference, phony billing practices, embezzlement and fabrication of expenditures.

  • Data Theft

Data theft is the illegal or unauthorized copying, removal, or theft of private, valuable, or confidential data or information from a company or organization without that company’s knowledge or approval.

Information important to a body corporate, such as trade secrets, client databases, software, source codes, confidential information, information that the body corporate is obligated to protect, hacking into databases, and many more in line with these, may be subject to data theft.

Financial or banking information, passwords, financial or banking information, personal information of clients or other employees, and many other types of information may also be stolen or hacked.

  • Accounting Fraud

Accounting fraud is committed by an employee who falsifies financial records to hide theft or plagiarises from the company’s payable and receivable accounts. Employees who commit these kinds of fraud typically have positions where they have unrestricted access to a company’s financial records. Fraud in accounting includes:

  • Embezzlement

This is any deception committed by a person who has authority over the money being utilized, often known as larceny.

Accounts Payable Fraud

One of the frauds that hurt businesses the most is accounts payable fraud. The majority of money leaving a firm legitimately passes through the accounts payable function, making it one of the simplest frauds to carry off.

False supplier

An employee creates a fictitious supplier and submits invoices to the company for goods or services that were not delivered.

Personal purchases

An employee makes personal purchases with corporate money and reports the payments in the accounting software as genuine business costs.

  • Payroll Fraud

More than one-fourth of organizations experience payroll fraud. Payroll fraud on a minor scale involves falsifying timesheets to reflect more hours worked or arriving late for work. Ghost employee schemes are widespread on a wider scale. These methods involve fake employees who are paid and listed on the books. Instead, the money is given to the individual who created the account for the fictitious employee.

Buddy punching, which occurs when an employee lets a coworker clock in for them when they are absent, is another instance of payroll fraud. Another instance, which is often easily overlooked, is when a worker asks for a paycheck advance but never repays the advance.

Tips To Prevent Employment Fraud Through Background Screening

Before trusting a potential employee, provided below is a list of tips to prevent employment fraud via background screening.

  • Identity check

According to a Forbes survey, more than 17 million consumers are affected by identity theft each year. Candidates’ identities and sincerity are confirmed through a national identity check. Any identity paper that is falsified, stolen, or altered should raise suspicions.

  • Education check

There have been numerous reports of false educational credentials and diploma mill incidents. Verifying education records enables the detection of bogus educational claims. The organization or university granting the certificate or degree is contacted as part of this process to confirm the subject’s important educational information, including the authenticity of the name, university, degree, course name and year of passing.

  • Employment check

Employment credentials are frequently falsified in order to obtain jobs in this intensely competitive industry. In a background check, former employers are called to learn more about the candidate’s prior employment, including the name of the business, the candidate’s duration there, and their position.

  • Resume validation

Examining a resume is the initial stage in the hiring process. People most frequently manipulate their information here. It is crucial that the information on the candidate’s resume is compared to their actual credentials and supporting documentation and that this information is retained throughout the screening process.

  • Criminal check

Businesses should make sure the applicant they recruit is honest and reliable. An extensive search of the candidate’s profile across all public criminal databases is conducted as part of a rigorous criminal check to learn more about the candidate’s past.

  • Credit check

Organizations must carefully assess a candidate’s capacity for managing extremely important responsibilities, especially when handling finances are involved. Credit checks assist businesses in assessing a candidate’s motivation and financial standing to determine whether they are qualified for the job.

For your current team members, you should put employee fraud prevention procedures in place. You can verify the dependability of your current employees regardless of how long they have been employed by your business by developing fraud and employee theft avoidance measures.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.