New hires can create new problems

In the not-too-distant future, companies will begin hiring again. Some of the newly hired employees will be receiving their first paycheck in months, possibly years. Others will be abandoning small companies that they started in favor of the stability that comes with a full-time position.

These newly hired employees will likely be extremely grateful for their new job, but they may also bring a great deal of baggage accumulated during their unemployment. Are they likely to commit fraud in their newly found role? Not necessarily, but how well prepared is the company that they are joining to prevent and detect fraud?

Throughout the recession, companies have maintained a laser-like focus on cutting costs. In order to be “lean and mean,” checks and balances meant to prevent fraud have often been abandoned or neglected. Even if the internal controls remain, the employees responsible for ensuring compliance may not. They could have been either laid off or assigned to cover the work of other employees that have been laid off previously.

Academics will argue that there is a strong correlation between unemployment and corporate fraud. I’ll leave that discussion for another day, as it deserves its own post. However, there is a strong link between lack of internal controls and fraud (so says the Association of Certified Fraud Examiners). And let’s not forget the “fraud triangle” developed by Donald R. Cressey, which includes three factors that are present when fraud is committed:

  • Pressure – The “would-be fraudster” has an urgent need for money

How many employees, when faced with calls from collections agencies and/or losing their house or possibly their significant other, have not been at least momentarily tempted to commit fraud? Contrary to popular belief, not all fraudsters are “bad” people. In fact, the vast majority of the fraudsters that I have met during my 16-year career are normal people that have made bad choices or experienced a run of bad luck.

  • Rationalization – “It’s OK; I deserve it” or “They’ll never miss it”

Sometimes, by its own actions a company can unwittingly help an employee rationalize why it is OK to commit fraud. For example, a fraudster that I interviewed was passed over for promotion three times with no real explanation as to why. Shortly after the third rejection, she decided to steal from the petty cash. It was her way of punishing her employer. Unfortunately for her, she ended up being the one who was punished; she lost her job shortly after the fraud was discovered

  •  Opportunity – Checks and balances have been removed. There is minimal management oversight, or management is overly distracted with running the business. Preventing and detecting fraud is not a high priority.

Now more than ever, employees have the opportunity to commit fraud. With no one minding the store, the opportunity to take money without being caught may be too appealing to ignore.

So what should a company that’s about to begin hiring do? Here are some areas to consider:

  • Revisit existing internal controls – You don’t have to automatically reinstitute all of the internal controls that were previously in place and subsequently abandoned. However, existing employees as well as new hires should have a strong belief that the company will catch them if they commit fraud. The  “perception of detection” can serve as a very strong deterrent for most employees.
  • Hire ethical employees – Conducting background checks, verifying an employee’s educational credentials, and calling references are all necessary steps to ensure that new hires have integrity and can be trusted. Take the time to understand what makes the candidate “tick.” After all, you are about to grant them access to your business and ultimately, your money. Trust, but always, always verify.
  • Have new hires sign a code of conduct – Establishing early on their employment, ideally on their first day with the company, what is expected of them as employees is often overlooked by small- and medium-sized companies.

Hiring new employees is not a risk-free endeavor, and this is certainly not a complete list of steps that you can take to prevent fraud by new hires.

Your company has weathered the worst economic cycle in recent memory. Now is not the time to welcome a new employee in to the company only to have him or her commit fraud.

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter, or white paper you get an accomplished writer that is also an expert in fraud.


About Paul McCormack
I have over 20 years of experience in corporate fraud and intellectual theft prevention, detection and investigation. Unlike many fraud experts, I have both industry and professional services experience. To date, I have conducted over 800 interrogations of fraud suspects including numerous senior corporate executives. As a freelance writer, I have written over 1,000 articles on a broad range of topics. My areas of expertise include: • Asset Misappropriation • Big Data • Bribery, Corruption, and Collusion • Check, Wire, ACH, and Credit Card Fraud • Consumer Fraud • Corporate Security • Cybersecurity • Data privacy (Europe, Brazil, Russia, India, and China) • Drug Trafficking • Embezzlement • Employee Fraud • Executive Protection • Fintech • Financial Statement Fraud • FCPA • Healthcare fraud • Identity Theft • Intellectual Property Theft • Internal Audit • Interrogation Tactics • Loss Prevention • Mobile Fraud • Money Laundering • Operational Excellence • Organized Crime • Payments Fraud • PCI Compliance • Retail Fraud • Risk Management • Terrorism and Counterterrorism • UK Bribery Act • Workplace Violence

3 Responses to New hires can create new problems

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