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Fraud Prevention – What You Need To Know

When we think of occupational fraud (when an employee, manager, or executive commits fraud against his or her employer), we often picture greedy, rogue, wheeler dealer types working in large financial institutions as the only individuals capable of fraudulently siphoning funds.

However, it is the SME cases that are just as alarming! In a recent case study, Alison Egar, a 45-year-old women, stole nearly 300k from two of her past employers, a medical centre and a publishing house. This is a telling case study for us to reference in helping any organisation prevent internal fraud.

What makes someone commit fraud?

Although the motivation is unclear in this case study, the common factor is that on both occasions Alison Egar was given access to the organisation’s finances without any effective background checking being carried out. Often positions of trust are more freely given in smaller organisations as a shortage of resources make it an ‘all hands-on deck’ model.  The fraud triangle is prevalent here – opportunity + motivation + rationalisation = fraud.

Unfortunately, anyone can fall into the lure of deception for financial gain, even trusted long-term employees. The start of this downhill spiral can be fuelled by various influences and state of minds, including an out of control habit or addiction, changes in personal circumstances, feeling entitled because of extra hours worked with little compensation or perhaps the unhealthy need to uphold a particular lifestyle to mimic what is absorbed on social media. For some it is simply a way of life created, sadly, by desperate circumstances and no industry is immune.

How do you prevent fraud in an organisation?

As you can imagine, we preach the importance of background checking at every opportunity; however, one of the most important factors is the correct selection of background checks – simply “ticking the box” will not bring the kind of value that really minimises risk.

A common misconception is that a Police Check will cover it.  Depending on the state jurisdiction and information release policies, a Police Check may reveal pending criminal matters, even if no conviction has occurred. However, a police check is a point in time check, that releases disclosable court outcomes, such as when a candidate has been convicted. So, if we look at Alison Egar’s case, it states ‘Egar’s crime spree ended on September 22, 2017’, however Egar was only convicted and sentenced on Thursday 29 August 2019.  If we received the results of a Police Check a year, a week or even a day before her conviction, then it is likely that her said ‘crime spree’ would not have shown.

It makes you question, where has Alison worked since 2017?  Has she stolen from other employers whilst she was awaiting trial?

What other background checks would have helped in the case of Alison Egar?

Reference checkgaining a reference from one or more of her past employers would have given the complete picture of her performance and, more importantly, her trustworthiness. Also remember that organisations don’t always report internal fraud, mostly due to the time that this process takes and cost (both financial and reputational), so a direct conversation with a previous manager could be the only way to find out history that is critical for a new employer to be aware of.

Bankruptcy check – this can sometimes be helpful in identifying if your candidate has had trouble with finances in the past – this can help you start a conversation with them. It may not preclude them from employment and relevance will depend on the individual’s role, but this knowledge will help you work with an individual to avoid exposing them to situations that might pose a temptation to them and a risk to the business.

Background check re-screening – this is where certain background checks are carried out again throughout an individual’s employment. This can be annually or considered when your candidate receives a promotion/role change that can result in heightened access to the business finances/assets etc. In Alison Egar’s case, she started committing her second reported round of fraud just after a promotion at the publishing house. If the re-screening process is introduced transparently at the onboarding stage, this will not be interpreted as a sign of suspicion or mistrust.

Generally, an individual that gets away with fraud once is highly likely to commit the offence again – past behaviour is often a predictor of new behaviour. Undertaking background checks on high risk roles where an individual has access to company assets/finances, both at the commencement and throughout an individual’s course of employment, may literally stop a “fraudee” in their tracks and prevent any foul play. Having that reassurance and protection for your organisation is priceless!

The information contained in this post is the opinion of PeopleCheck Pty Ltd and does not form the basis of legal advice.

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