Upfront checking means fewer fraud investigations after the fact

In this second of our two-part feature on employee investigations, we look at reference checking, investigating workers’ compensation claims and obtaining health information.
By Laura Cassiani
|Canadian HR Reporter|Last Updated: 09/04/2003

For an entire year, an unqualified employee was in charge of all of the financial transactions of an international manufacturing company.

His employers had no idea they had hired a grossly unqualified individual to handle all of the company’s financial dealings, after all, according to the individual’s resume, he was more than qualified to do the job.

It was only when the Asia-based employer started to have suspicions about the controller’s competency a year later that the man was discovered to be a fraud.

“As it turned out, his educational qualifications were completely contrived as were his previous employers. The guy was a complete fraud,” says Chris Mathers, president of KPMG Corporate Intelligence Inc., who investigated the employee.

Resume fraud

Scenarios like these may sound dramatic but are happening in boardrooms in every industry all over the world, mainly because employers are not being vigilant enough about who they let in the door.

The problem is more acute for senior executive positions where HR has a limited role in the hiring process but are usually the first to take the blame when a new hire turns out to be an impostor. Mathers says senior executives usually decide whom they want to hire and then ask HR to do the necessary paperwork. Most of these decisions are based on interviews or through networking rather than a thorough check of qualifications.

“Quite often (hiring for executive positions) is done through the old-boys-network. They don’t go through the same hiring process,” says Mathers.

Considering the options and services available to employers, coupled with the fact that lying on a C.V. is “a national pastime”, says Mathers, most “employers are still hiring people without screening them first.”

Reference checking

A Canada-wide survey conducted two years ago by Axiom International, a reference-checking provider, showed an overwhelming majority of companies found exaggerations on resumes. And while 80 per cent of the companies that responded believe reference checking is important, many reported not asking questions necessary to obtain a complete picture of the candidate. Less than three per cent of respondents reported asking about all of the following: the applicant’s experience, responsibilities, technical skills, work quality, ability to meet deadlines, reliability, honesty, creativity, leadership abilities and reason for leaving.

When filling a top position, like that of CEO or CFO, what employers most want to know, in addition to educational credentials and past employment record, is the reputation of a potential hire, including clubs they belong to, political affiliations and integrity. If investigators are dealing with a high-profile candidate, Mathers says investigators will even search newspaper articles to see how they have been perceived in the media. For entry-level positions and other lower-end placements, background checks usually involve the basics, including confirming educational background.

“(Employers) don’t want to spend a couple of hundred for checking low-end jobs or the couple of thousand for higher-end jobs but they end up paying for it in the end.” And sometimes that price can be in the hundreds of thousands of dollars.

A Toronto-based trucking company could have saved $250,000 had they conducted a background check on a woman they hired to manage their accounts department. Over the course of her two years as a bookkeeper, the employee siphoned $250,000 from the company’s general account. She was ultimately prosecuted on criminal charges of fraud and theft under $5,000, and sentenced to three years in jail.

If they had called her previous employer they would have discovered that the woman they hired had defrauded them of $100,000 and was ordered to pay back the money.

“All they would have had to do was call her previous employer like I did,” says Robert Woodman, certified fraud examiner and president of Berkeley International Intelligence Inc., who headed the investigation.

“(The former employer) said they would have tipped off the company had they known they had hired her.”

Woodman, who has been in the business of investigating workplace fraud for more than 30 years, says HR departments should be looking for the “little things” when reviewing resumes and asking questions about the applicant’s functions and responsibilities when interviewing referees. One of the most important questions to ask of former employers is whether or not they would re-hire the applicant. Subtle things like the misspelling of a university or college name, or the lack of dates, are usually warning signs of an embellished resume.

“The more specific the person is usually indicates that you don’t have much to worry about. The lack of specifics is usually a red flag,” says Woodman.

Money is not the only reason to check the background of employees. In services such as child-care for example, employers have to be concerned with safety issues.

The Quebec government announced last month that it will conduct background checks on the province’s 35,000 day-care workers after an investigation into 7,030 day-care owners found that 20 had criminal records.

Health information

While checking references before hiring someone can help safeguard an employer from hiring a criminal or an under-qualified individual, employers, and HR departments specifically, should be aware of the limits to their inquiries.

Health or medical information, for example, should be sought after an offer of employment has been made and with the consent of the employee.

Consider this example: during an interview, an employer asks a prospective hire if she has any physical disabilities. The applicant divulges that she has a physical ailment and the rest of the interview focuses on this issue. The employer declines to offer the applicant employment.

In cases like these, Soma Ray, an employment lawyer with Donahue Ernst & Young, says a case can be made for discrimination based on a prohibited ground under human rights legislation.

“During the hiring process employers need to be cautious with respect to obtaining information which may be capable of forming the basis of a human rights claim,” says Ray.

And they should be equally careful if they obtain that information through references.

“Reference checking which reveals information and leads to a denial of a job should be carefully examined to ensure that applicants are not being discriminated on the basis of a prohibited ground,” says Ray.

During an interview, questions about an applicant’s fitness should be asked only if relevant to the position being applied for.

“Questions should be limited to whether an applicant is able to carry out the essential duties of the job,” says Ray.

Investigating injured workers

Increasingly, employers are paying more attention to workplace safety and insurance claims. In Ontario, that trend is due in part to changes to the workers’ compensation regime that put more responsibility on employers.

“It’s mandated that the employer be more active. They certainly are more aware of these claims and they are a lot less likely to sit back and let the claim go forward without assessing the validity of (the claim),” says Patrizia Piccolo, an employment lawyer with the Mississauga, Ont.-based law firm of Keyser Mason Ball LLP.

Employers are sending out clear messages when they choose to investigate these types of claims. However, they need to be mindful that it may also have a chilling effect on legitimate claims. Most employers become suspicious about claimants if they hear rumours from other workers, if an employee’s absence is longer than expected or if the employee is reluctant to co-operate with the employer.

Once they have a suspicion, HR departments can enlist the services of private investigators. Evidence from those investigations, obtained legally in a way that does not contravene the Criminal Code, is then brought before the board hearing the claim.

Most investigations into workers’ compensation claims involve staking out an employee’s address or video surveillance, says Darrell Parsons, certified investigator and president of Accu-Fax Investigations Inc.

According to Parsons, half of workers’ compensation claims in the automotive industry turn out to be fraudulent.

“(Workers’ compensation) costs companies a lot of money. There has been enough abuse and if it is proven in the workplace (to be a fraudulent claim), (the instances of these claims) will go down. It becomes a prevention,” says Parsons.

Ethical considerations

The issue of employee investigations is fraught with ethical implications.

Employers need to be aware of the processes they choose and the implications of those choices, says Neil Shankman, business professor at the Schulich School of Business at York University.

“Companies, in protecting themselves, may be going too far,” says Shankman.

With the law clearly on the employers’ side, the question of boundaries becomes an ethical concern, and setting the cultural tone of the organization.

Some employers are going to great lengths — including tactics that border on the shoddy and barely legal such as finding pharmaceutical records to determine an applicant’s drug history — to get dirt on employees.

But in the end those tactics are proving more detrimental to the employer than beneficial, considering the reputation attached to such measures and the stigma that follows.

Shankman says most organizations are not taking that route; rather, they are taking a mixed approach to employee investigations. While they aim to find blame for a particular event like fraud or a sexual harrassment complaint, organizations are also using investigative tools as prevention for these problems.

“People are going to make mistakes but it’s how you deal with those mistakes.”

E-mail and Internet surveillance: Best practices

Employers are increasingly using e-mail and Internet surveillance to protect themselves against abuse and contentious workplace issues, like harassment. The Canadian Information Processing Society has outlined a number of practices employers should keep in mind:

•Surveillance should be a last resort tool; traditional management techniques should be used where the offending behaviour is not criminal;

•Surveillance should be targeted at individuals where there is a reasonable justification that an employee is involved in a serious misuse of the company resources (i.e. downloading of pornographic or hate material);

•Pre-notification of surveillance should be given to the individual where it does not involve possible criminal activity;

•Withdrawal of e-mail and Internet privileges, where they are not necessary to the performance of duties, is an alternative to surveillance;

•Surveillance is a management issue not a technical one and should be approved on a case-by-case basis by a manager or chief administrative officer;

•Law enforcement agencies should be involved if the behaviour violates criminal law in order to avoid compromising a criminal investigation; and

•If surveillance activities become commonplace, management should consider whether inappropriate use of e-mail and the Internet is a symptom of other problems.

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