Three ways to prevent employee fraud through effective hiring

Employee fraud is commonplace. Did you know that the average organization loses 5% of its revenues to fraud annually—accounting for a median loss of over $150,000? Even more shocking is that most frauds last an average of 18 months before detection¹.

Fraud can take a variety of forms. The most common is asset misappropriation schemes, which include billing, payroll, or expense schemes. There is also financial statement fraud (i.e., “fudging the numbers”) and corruption—the cases of bribery and extortion that frequently make news headlines.

Fortunately, the St. Louis Small Business Monthly highlighted several ways that candidates could be red-flagged early on during the recruitment stage—saving the organization time, hassle, and of course, money. One strategy is simply to ask better questions of references.

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Fred Miller, principal of No Sweat Public Relations, dealt with fraud several times during his years in the wholesale refreshment industry. As a result, he learned that asking very specific questions or references can pay dividends.

“You have to check up on references,” says Miller. “Call them up and ask them three questions: Would you hire the employee again? Did they show up? And, did they handle money?”

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Other key strategies are to leverage validated assessments and to use validated structured behavioral interview guides. Validated assessments are useful for prescreening candidates by predicting their likelihood of engaging in effective behaviors and avoiding ineffective and even detrimental behaviors, like fraud. If candidates are advanced to the interview stage, structured behavioral interviews allow an interviewer to assess how a candidate behaved in past situations—including that regarding finances.

The full article is available in the 2012 edition of the March 2012 edition of the St. Louis Small Business Monthly.

¹ Association of Fraud Examiners