Winnipeg Free Press - PRINT EDITION

Fraud fight

Illegal behaviour costly to business

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I don't know if it's just me, but it seems that fraudulent and other questionable employee behaviour is on the rise as there isn't one week that goes by where a troubling incident isn't reported.

For instance, a Manitoba manager was recently accused of stealing over $1 million of federal funds from a health agency and was expected to plead guilty.

In Alberta, we learned of a "senator in waiting" who is trying to mend his reputation as a big spender of public funds by paying back expense money to his university board. No matter what, he'll be dogged by this lack of respect for public funding and will be continually scrutinized if his appointment to the Senate proceeds.

Unfortunately, theft, plain and simple, is all around us. For instance, a man recently drove up to a gas station, filled up his tank and left without paying. Another local man entered a liquor store, placed two bottles in a cloth bag and walked out of the store.

In addition to outright theft and/or diverting funds as described above, employees have been known to show up for work, swipe their card and then immediately depart and return at the end of the shift to swipe out. Still others have falsified a supervisor's signature and/or provided a false medical verification for absence. Others feel no remorse at taking bundles of office supplies to their home.

What's disconcerting about these stories is that these individuals have a job. Perhaps they work at your business or organization.

The Certified Fraud Examiners Association (CFEA) in its recent 2012 report identified that most occupational fraud goes undetected for a minimum of 18 months and is more frequently discovered by a tip rather than through internal control systems. In one instance that I am aware of, an employee engaged in fraudulent behaviour for five years and was caught only because a new senior manager began his tenure by reviewing the company's human resource expenses.

Needless to say, fraudulent employee behaviours are difficult to identify and over time can create a significant cost for the employer. So, if one isn't careful, you might find yourself being defrauded out of as much as $1 million as well.

In fact, according to the CFEA report, companies are typically losing five per cent of their annual revenues to fraud. Smaller organizations are considered to be more at risk because their anti-fraud controls are usually not as sophisticated. As a result, the average loss for companies of less than 100 employees was found to be approximately $147,000 a year. Unfortunately at the same time, at least 50 per cent of these small businesses are unable to recoup their fraud related losses.

In addition, organizations confronted with fraudulent employee behaviour more than likely also will suffer from the emotional fallout of other employees. For instance, low employee morale and high turnover are a definite signal that something is wrong. In fact, when you encounter signs of low morale, look deeper into the cause; perhaps employee fraud is right at your doorstep.

As a result, more and more organizations are turning to online psychometric assessments as a key part of their candidate selection process. More specifically, these assessments are being used as one of several detectors in determining whether a new employee will engage in unethical or harmful behaviour.

Today's psychometric assessments have been carefully constructed and tested, retested and validated and are frankly, very accurate. The assessments typically come in the form of a questionnaire that measures such candidate elements as intelligence, abilities, attitudes, beliefs, values, personality traits, and/or characteristics such as effectively dealing with people or being continually late.

One popular candidate assessment tool, the ESQ2, is produced by Sigma Assessment Systems and measures both positive and negative work behaviours as demonstrated by the assessment responses given by the potential candidate. Positive workplace behaviours include customer service, accuracy, productivity, commitment, job satisfaction and promotability. Negative behaviours include a propensity for alcohol and substance abuse, unauthorized sick days, driving delinquency, lateness, loafing, sabotage, safety infractions and theft. The assessment tool can be completed in a short time and results in a profile of the potential candidate and a "hiring" recommendation.

In one study after the use of the ESQ2 assessment tool, a large retail client was able to reduce integrity-related terminations (theft, misconduct) by 80 per cent in just four months. At the end of the year-long evaluation of this instrument, these client terminations were reduced by 90 per cent. In another case study, a large manufacturing plant was able to reduce workplace injuries among new employees to a low of four per cent.

Recently, a new study out of the London School of Business suggests that employees who are at risk of engaging in unethical or harmful behaviour have a propensity to "morally disengage." In other words, they morally justify their behaviour by sanitizing their language to make their behaviour more acceptable. They also engage in mental gymnastics by reconstructing their actions in their mind so that their behaviour appears less harmful. In addition, they may compare lying on an expense report with something more reprehensible such as a larger fraudulent action, thereby justifying their own actions. Finally, this type of employee fails to take personal responsibility and therefore always blames others.

This most recent research has led to the development of an eight-item assessment tool that measures the potential of a candidate to be morally disengaged, which in turn identifies whether the individual will engage in unethical behaviour that is harmful to their employer.

Another assessment tool known as the MERIT profile assesses both personality and behavioural characteristics of potential new employees. This assessment tool has been tested in over 50 countries and will evaluate an individual's propensity to be proactive, take personal responsibility and make things happen. It assesses an individual's level of self-esteem and positive attitude and relates how these elements will affect behaviour on the job. In addition, the assessment tool provides a glimpse into the individual's ability to work well with people, realign and manage change and to be persistent in their work.

It doesn't matter which assessment tool an employer uses, the tool is only one part of the overall decision making process. Employers should also conduct thorough reference checks by including comments from people who reported to the candidate as well as supervisors and colleagues. As well, employers need to engage in thorough pre-employment background checks that include confirmation of educational credentials and identification of a criminal record, as well as credit status, at the very least.

Our work world and our citizenry are growing more and more complex to such an extent that employers can no longer simply rely on resumé screening and a one-time interview for their candidate selection decisions. More sophisticated tools and processes must be applied to reduce your risk. Remember, employee fraud also has tremendous costs far beyond the dollar figure.

Source: 2012 Report to the Nations on Occupational Fraud and Abuse, Association of Certified Fraud Examiners; Why Employees do Bad Things: Moral Disengagement and Unethical Organizational Behaviour, Celia Moore, et.al, Personnel Psychology -- Volume 65, Issue 1 -- Spring 2012

 

Barbara J. Bowes, FCHRP, CMC, CCP, is president of Legacy Bowes Group. She can be reached at barb@legacybowes.com

Republished from the Winnipeg Free Press print edition September 15, 2012 H1

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