4 Ways Employees Can Steal From You

According to the 2007 National Retail Federation survey, retailers lost 41.6 billion dollars to theft and fraud.  The majority of retail shrinkage last year was due to employee theft, at $19.5 billion, which represented almost half of the losses (47%).

While large corporations can usually weather the financial impact of employee embezzlement, the problem hits smaller organizations much harder. In many cases, business owners have lost their life savings to a bad hire. Even medium-sized companies can falter under the impact. Below, I’ll describe 4 ways in which an employee can steal from you. Then, I’ll explain the best way to prevent it from happening to your business.

#1 - Inflated Expense Accounts

Expense accounts are important for a variety of businesses. However, left unchecked, an employee can easily fabricate expenses, claiming reimbursement for money that was never spent.

#2 - Tampered Payroll

Payroll fraud is more prevalent than many employers realize. A bad hire may add ghost employees to the payroll, claim wages that are unearned or unauthorized, or even steal and cash blank payroll checks.

#3 - Fraudulent Billing Schemes

A lot of organizations work with vendors, yet have no formal process by which purchase orders are reviewed and approved. Employees can easily establish fictitious vendor accounts, diverting payments to a P.O. box.

#4 - Register Theft

Businesses that operate in a retail setting can be victimized by an embezzling employee who steals directly from the register. In simple cases, the employee collects money from a legitimate customer for a purchase, but instead of ringing the sale, the employee pockets the cash.  It can go much further, including falsifying refunds, voids and taking advantage of customers’ credit cards.

How To Prevent Employee Embezzlement

A major portion of employee embezzlement can be prevented. Employers must maintain a strict employee screening process and perform thorough background checks on job candidates. While uncovering past incidents of theft or misappropriation of funds can be difficult, the profiles of bad hires who are likely to commit fraud are often similar. The worst thing an organization can do is neglect the importance of screening applicants and doing comprehensive background checks.

Eliminating bad hires from the applicant pool can save your company the headache of dealing with theft, fraud and embezzlement.

Can You Tell If Your Applicant Is Lying?

It’s estimated that nearly 30% of job applicants lie on their resumes. Millions of candidates misrepresent their education, work history, and qualifications. Even worse, they might be hiding a criminal past. According to ADP Screening and Selection, out of over 2 million background checks performed in 2001, over 40% of applicants lied about their past employment or education.

Some HR executives are confident that their interviewing skills can help them identify liars. But, studies show that visual clues are often misleading. And the cost of hiring a bad employee can be enormous.

When Visual Clues Are Unreliable

HR professionals often think that a lack of eye contact or excessive squirming is evidence that a potential hire is lying. But, such visual clues are unreliable. A candidate who doesn’t maintain eye contact and fidgets during an interview may be well-qualified, yet simply nervous. Eliminating him from the applicant pool can be a lost opportunity for an organization. What’s more, millions of people are adept at lying. Lacking visual evidence of dishonesty, an HR executive may hire a candidate who has misrepresented himself.

The True Cost Of A Bad Hire

Hiring someone who has lied on his resume can create a number of costly problems for a business. For example, if a new employee lied about his qualifications, a business might be forced to waste time training that employee or looking for another candidate. If a criminal history remains hidden, the costs can be much higher. Employee theft, workplace violence, and substance abuse can lead to expensive negligent hiring lawsuits. The true cost of hiring a bad employee can be unfathomable.

Background Checks Are Essential

Because employers and HR professionals can’t depend upon visual clues to identify lying applicants, they must perform comprehensive background checks. Checking references, calling past employers, and looking for hidden criminal records is the only reliable way to reveal whether an applicant is misrepresenting himself. If your business is hiring employees without conducting background checks, you are exposing your company to unnecessary risk.

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4 Questions Employers Have About Employee Screening

Even though employee screening should be a fundamental part of every company’s hiring practices, many employers are concerned about how to take action on it. Most of them understand the severe costs of hiring a bad employee. But, they are still uncertain about how to begin screening candidates and conducting background checks.

Here are 4 common questions that many employers have about employee screening…

#1 - “Can We Afford Screening?”

The question that employers should be asking is, “Can we afford not to conduct employee screening?” Hiring a person without knowing whether he has a criminal record, drug problem, or a history of violence can be far more expensive than doing a background check. A single violent outburst in the workplace can end up costing millions. Meanwhile, screening a job candidate by running a thorough background check usually costs less than what employers spend on that employee during the first day.

#2 - “Do I Have A Legal Right To Screen?”

The government allows employers to conduct intense screening and background checks to order to avoid hiring bad candidates. Once a potential hire signs a consent form, the employer can legally begin checking credit reports, motor vehicle records and civil reports. They can also perform a criminal history search while verifying the candidate’s employment and education history.

#3 - “How Much Time Does Take?”

One of the concerns that employers have is whether doing an exhaustive background check will take too much time. A thorough screening process shouldn’t require more than a few days. Plus, having a policy of doing employee screening tends to discourage bad candidates from applying.

#4 - “Do I Have The Resources?”

Screening job candidates properly does require time and attention. Because many hiring managers are increasingly busy, a lot of companies choose to outsource the job to an experienced employee screening company. This type of service can immediately start conducting extensive background checks on potential hires.

Employers should consider employee screening as a critical part of the hiring process. It’s legal, cost-effective, can be done quickly and by outsourcing, doesn’t require a boost in HR staff. And the nightmare it can help employers avoid from taking on bad hires is immeasurable.

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Four Red Flags To Look For In A Credit Report

Last week one of our clients asked me if there are any “red flags” to look for on credit reports when used in the employee screening process.  I thought our readers could benefit from this so here they are…

Four Red Flags To Look For In A Credit Report:

1. What are the applicant’s total monthly payments?  How does this compare to the projected salary and benefits?  If the total monthly payments are significantly larger than their income it may be a red flag.
2. How many negative items are listed, such as late payments, collection actions, writeoffs or an account closed by the credit grantor?
3. Are there any negative public records and are they related to employment?  For example a tax lien may indicate someone has not paid attention to their financial affairs or is under financial stress.  If there is a bankruptcy in the credit report, then the employer should NOT utilize the bankruptcy without talking to an attorney.  Federal law expressly prohibits a private employer from discrimination solely on the basis of a person exercising their rights under the bankruptcy laws. Refer to 11 USC 525.
4. Are there alerts from the credit agencies?  Some bureaus issue fraud alerts if there is a suspicion of fraud or abuse.

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