How Background Checks Can Prevent Workplace Fraud

November, 05th, 2024- While the majority of employees in a company are trustworthy, a few are not. Unfortunately, those few dishonest employees can seriously harm the company. One of the biggest issues that companies face is internal theft/fraud. Statistics obtained by the Australian Federal Police indicate that 7 percent of business fraud losses are instigated by current and former staff, costing businesses over $1.5 billion yearly. Furthermore, a whopping 30 percent of business failures are caused by employee theft.

Therefore, employers must bring in the right people into the organization to minimize the risk of fraud. One way employers do that is by making use of background checks. This post explores how background checks can help prevent fraud.

What is a Background Check?

A background check is a process used by companies to verify that a person is whom they claim to be. Background checks can be used to check a person’s criminal record, education, employment history, credit report, driving record, and more.

An applicant that has lied about an educational or work experience can be discovered with a thorough background check. This can help prevent employers from hiring dishonest candidates.

Here are how some specific background checks can help prevent fraud.

✔        Criminal history check

Through a national police check, an employer can find out about the criminal past of a potential hire. A person that has been convicted of a series of fraudulent activities in the past is likely to do the same in the future. Employers can say away from employing such a candidate.

✔        Credit history check

This check is primarily carried out for finance-related roles. It provides insight into the spending habits of potential hire and their current financial situation. An applicant going through financial stress may not be suitable for a money-related role because of the increased pressure to engage in fraud.

✔        Right to work (VEVO) check

This check is primarily carried out for all types of job roles in countries like Australia and assesses whether or not the job candidate has adequate work rights from the department of immigration. A work rights check like a vevo check can be completed completely online in Australia using passport details.

Understanding the Limitations of Background Checks

While background checks can provide valuable insight into an applicant’s trustworthiness, there are serious limitations. Some of which include. 

✔        They are only valid up to that current point

A background check that’s valid today, may not be valid tomorrow. People do change and a person that has been cleared at the point of hire may engage in fraud in the future.

✔        Wrong hires slip through the cracks.

Not everyone that has committed fraud has been convicted. Some people have been lucky to get away with it. Even during background checks, critical information sometimes gets missed. This way, people with a tendency to engage in fraud may slip into the cracks, despite undergoing background checks.

Are Background Checks Worth It?

Despite these limitations, background checks are still worth it. According to the Association of Certified Fraud Examiners (ACFE), about 1 in 10 fraudsters could have been identified had thorough pre-screening checks been put in place. 10 percent might not seem like much, but that’s about a $150 million reduction in annual workplace theft in Australia.

 Holistic Fraud Prevention.

Having a pre screening procedure in place is not sufficient to prevent fraud. Here are some additional actions employers can take to drastically minimize workplace fraud.

✔        Rescreening Current Employees

By rescreening employees on a routine basis, employers can get a sense of the current situation of their employees and determine if they’re likely to engage in fraud. Moreover, it provides the opportunity to identify wrong hires that might have slipped through the cracks.

✔        Minimize Access to information

Minimizing the amount of exposure and access employees have to information can help to reduce theft. Having a single person responsible for all accounting information will make internal controls for fraud prevention ineffective. That’s why one person should have the ability to initiate, approve, and record a transaction. Delegation of control is key.

✔        Make the Consequences Clear

Having a clear consequence for workplace fraud and theft will help deter some people from engaging in it.