Reduce Small Business Fraud with Pre Employment Tests
It was summertime in 1971 when the pop single, Smiling Faces Sometimes, hit the airwaves. Coming into popularity after the 60s, a decade of social turmoil and distrust, the lyrics resonated to listeners.
Smiling faces sometimes pretend to be your friend,
Smiling faces show no traces of the evil that lurks within.
Smiling Faces Sometimes by Undisputed Truth
These same lyrics resonate today, but for a distinctly different audience. It’s you — hiring managers, small business owners, human resources directors and generalists reading this newsletter — who understand what can be hidden behind a smile, a warm handshake and a friendly demeanor.
Consider the candidate who dresses well, gives all the right answers, and practically oozes personality. Everyone is bowled over by his charisma and reference checks confirm gut instinct. You hire the person, and suddenly events start to spiral out of control.
A business that hires employees without screening them faces problems ranging from lawsuits to bankruptcy. The Association of Certified Fraud and Examiner’s 2008 Report to the Nation on Occupational Fraud and Abuse, reported that the typical U.S. organization loses 7 percent of its annual revenue to fraud. This translates to approximately $994 billion in total losses. That’s billion, with a “B.” If you believe that kind of scandal is limited to the big corporations that make the news, think again.
Approximately 40 percent of the fraud detected in the AFCE were privately owned companies. Small businesses, which the study defined as organizations with less than 100 employees, suffered a greater percentage of frauds (38 perecent) and a higher median loss ($200,000). The loss is over a 100 percent increase from just 4 years earlier. Industry giants may be able to take the hit of large loses and plummeting stocks. For most small business owners, that sort of body blow does irrevocable damage. Consider the sobering thought that one incidence of employee-committed fraud can literally put a company out of business.
The potential for fraud lurks everywhere, although position tends to affect the size of the loss. The most fraud occurred among hourly employees (40 percent) making less than $40,000; however, a dishonest manager costs the company nearly twice that of a dishonest employee. But both these losses pale to those of owners/executives at 12 times more than fraud perpetuated by dishonest hourly employees.
Background checks are frequently used as part of the hiring process in order to ensure the reliability of an organization’s workforce. Unfortunately the effectiveness of background checks in preventing fraud is limited. As we found in our previous studies, the vast majority of employees who commit occupational fraud are first time offenders. In 87% of the case, the perpetrator has never been charged with or convicted of a fraud-related offense prior to the discovery of his or her scheme. Additionally, 83% of the fraudsters had never previously been punished or terminated by an employer for fraud or abuse.
That doesn’t mean that employers can’t implement better pre employment fraud prevention measures. To screen candidates before employment, pre employment tests can assess candidates for attitudes about honesty and integrity, conscientiousness, hostility, and dependability.
It’s clear why employers want proof about who lies and who doesn’t. Finding the proof isn’t so easy. Back to the prophetic lyrics … “Smiling faces, smiling faces, Tell lies and I got proof, Beware, beware of the handshake, That hides the snake, I’m telling you beware, Beware of the pat on the back , It just might hold you back.”