How to combat employment fraud to prevent long term repercussions

 

Employment fraud not only takes a financial toll due to the hiring of an ill-suited candidate but also increases risks of occupational fraud

In brief

• While employees committing employment fraud stand to lose their job when the misdemeanor comes to light, the organization incurs long-term
• Candidates using fraudulent methods to land a job can severely impact the organisation and its reputation and increase occupational fraud risk
• Organizations can benefit from investing in tech-forward tools for background verification to address loopholes

The events that marked the beginning of this decade spurred unprecedented transformation by compelling organizations to accelerate their digital journey and enable remote working and business continuity. While it ushered in a new working world of tech-powered solutions, the accelerated pace of growth also left organizations vulnerable to heightened fraud risks.

During these challenging times, human resource functions found themselves struggling to bridge the talent gap in organizations through remote hiring. However, without the tried-and-tested safety measures in place, fraudsters exploited the loopholes in the tech-enabled virtual interview and skill-assessment process to con organizations into hiring inadequately skilled, unscrupulous, or downright unqualified candidates for important positions, through impersonation, proctored interviews, etc. Lack of continuous monitoring in a remote working environment also resulted in issues of multiple employment and compromised employee performance. Existing controls such as physical employee background checks, proved increasingly unreliable in this landscape. According to the Association of Certified Fraud Examiners’ Report to the Nations 2022, 21% of the organizations that fell victim to fraud had chosen to onboard candidates ignoring the red flags that were raised during the employee background-check process, evidencing their dire need to hire.

Impulsive hires tax more than just company resources. Candidates using fraudulent methods to land a job can severely impact an organization’s reputation and increase occupational fraud risk. Additionally, companies face issues such as employees not returning assets when completing exit formalities, absconding employees, and ghost employees.

Organizations share confidential information and valuable data with employees based on the trust established during the onboarding process. The trust is built on candidate’s past employment, educational, criminal, and behavioral claims. If the relationship is built on false pretexts or with forged documents submitted by the candidate to improve their chances of being recruited, it can prove detrimental to the organization. All frauds are breaches of trust. Occupational fraud—asset misappropriation, corruption, and financial statement fraud—is the costliest such and , yet, also the most common form of deception that takes place within organizations. The Report to the Nations 2022, which covered 2,110 cases of occupational fraud in 133 countries, reported losses of more than US$3.6 billion incurred by affected companies. Candidates who use fraudulent ways to get hired are likely to operate with the same mindset during their employment, resulting in increased incidences of occupational fraud.

Failing to onboard employees with verified credentials also necessitates the implementation of enhanced security measures, internal controls, and employee monitoring systems that can increase operational costs. Apart from the monetary toll, organizations also pay heavily to hire resources to investigate claims of fraud, gather evidence against fraudulent employees, and then in legal costs to resolve the issue and pursue action against the miscreants. In addition, they also must expend time and resources to replace talent. 

A fraudulent candidate presents false information due to the lack of appropriate credentials to secure the position organically. With the advent of technology and the remote hiring scenario, fraudsters are creating deep fakes to impersonate qualified professionals and land a job on their behalf. Such frauds triggered by impersonation can hamper overall team productivity, compromise business outcomes, and expose the organization to legal and reputational damage.

While employees committing employment fraud stand to lose their job when their misdemeanor comes to light, the organization incurs long-term reputational damage in the ordeal. The resulting negative publicity can have serious repercussions. Customers and investors have a hard time trusting companies that make headlines due to the wrong reasons. It also impacts the other business relationships that the company might have carefully cultivated over a period. It is both costly and time-exhaustive to regain reputation, once tarnished.

Employment fraud, like every other scam, is difficult to avoid. However, occurrences can be reduced considerably by implementing innovative solutions. To nip the issue of wrongful hires in the bud, organizations can benefit from investing in tech-forward tools for background verification that leverage data and cutting-edge innovation like face-matching and geo-tagging to address the loopholes in the employee records verification process in a timely and cost-effective manner. This early intervention and continued monitoring throughout the employee’s term at the organization can help reduce the additional costs incurred in operational oversight and help keep other instances of fraud in check too.