Who are you ... really?

One HR professional, who asked to remain anonymous, says that she discovered that a colleague, who had been hired externally for an organisational development position she had also applied for, had falsely claimed to have an undergraduate degree and an MBA. When this employee told her employer about the fabrication, he did nothing about it.

Statistics

There are several companies that now specialise in conducting background checks and pre-employment screening, which is done with the consent of the applicant. Luke Battah, managing director of Refsure Worldwide says that over the last 12 months, approximately a quarter of all applicants searched have some form of discrepancy – the majority relating to an individual’s employment or academic history.

Australian Background says that 21 per cent of the 1,000 applicants it surveyed lied about their skills, experience or qualifications. Some 5 per cent had criminal convictions and of these, 21 per cent (or 1 in 100 applicants) had prior convictions for theft and embezzlement.

Fraud cost the Australian economy $5.88 billion in 2002, which represents over 18 per cent of the total cost of crime, according to Dr Russell Smith, principal criminologist at the Australian Institute of Criminology. “Rates of reporting fraud are as low as 25 per cent in small businesses and only around 60 per cent in large companies,” he says. This has two main consequences. It makes it difficult to understand the full nature and extent of fraud and it allows the perpetrators to re-offend in another company that does not conduct thorough reference checks. In fact, of serious fraud cases that go to court, 17 per cent of those convicted re-offend and 18 per cent go on to commit other crimes.

HBOS Australia

HBOS Australia (HBOSA) is part of the fifth largest banking group in the world, as owner of BankWest, Capital Finance, BOS International and St Andrews Australia. It employs 3,850 people in Australia and New Zealand in marketing, payroll, call centres and customer service, finance and senior management.

Laurence Halabut, HBOSA’s HR manager, says that Capital Finance began doing background checks on new applicants in order to combat incidents that had arisen in that business. When HBOSA developed an HR shared services model 18 months ago, background checking became standard across the group.

“We originally just did it for people who dealt with accounts, but then became non-discriminatory in order to safeguard ourselves as well as our customers,”explains Halabut. APRA (Australian Prudential Regulatory Authority) also requires “responsible officers”to have background checks prior to appointment.

Halabut says the firm does see instances of lying on a CV. HBOSA has employed over 1,000 people this calendar year. Each month, they uncover two or three candidates with discrepancies on their CV that range from employment dates being wrong, through to criminal convictions and exaggerated or fabricated qualifications. Background checks are done with the employee’s approval, after they have been reference checked and usually after starting with the company.

“I’d much rather see ‘career break’ written on a resume than wrong employment dates. Some people can get a police record because of a university prank, so if we are told about something up front, it is much easier for us to make a decision about employment up front. We make a final decision based on the employee’s honesty, because honest people are a good fit with our organisation. It is important to deal with each case individually,” stresses Halabut.

Nanyang Ventures

Chris Golis, executive chairman of Nanyang Ventures, screens CEOs and non-executive directors as part of due diligence when assessing a business that is seeking venture capital. “We outsource the background checks in order to remove the natural bias that we have. We want to do the deal, so we may not ask the right questions,” says Golis.

Out of the 100 people he has had checked in the last six years, Golis says he has caught out about five. “Mostly, people who have a problem say, ‘I can’t believe you want to do a background check on me! Just call so and so and they’ll verify me,’” he says.

One person has slipped through Nanyang Venture’s reference checking net. “Half the people we spoke to said they would never work with him again and the other half said he was the best person they had ever worked with. The guy sold us. These people are usually very good salesmen. People who falsify educational degrees lack integrity. We need people who have integrity,” says Golis.

Golis uses another check to confirm business acumen. He has devised a two-page questionnaire of financial questions that he says should take competent people about 20 minutes to complete. “If people with brilliant qualifications on paper can’t read a P&L and balance sheet, there is no point in going any further with them,” he says.

CanTeen

CanTeen is a registered charity that provides holidays, training and counselling for young people with cancer. The organisation was the victim of a $300,000 fraud, perpetrated by its accountant, Neil Mitchell, from 2001 to 2004. Mitchell pleaded guilty to 244 counts of fraud. He transferred amounts ranging from $150 to $4,102 into bank and credit union accounts he operated jointly with his wife, who was not charged.

Mitchell was hired on the recommendation of a recruitment firm specialising in staff for the finance sector. He was not a qualified accountant, although on arriving in Australia from his native South Africa, had managed to work for a number of years with one of the big four accounting firms as an accountant and auditor.

The recruitment firm involved would not discuss his details. Just prior to starting with CanTeen, Mitchell had been terminated from the position of business unit manager at Sydney’s St Vincent’s Hospital where he was in charge of millions of dollars of trust funds. According to a Sydney Morning Herald report, a spokesman for the hospital said his termination was not for dishonesty but for “some other form of misadventure – it was very messy.”

Andrew Young, CanTeen’s CEO, says it has always had a policy to conduct police checks and reference checks. “[Mitchell] had no prior convictions and had worked for several years with one of the big four accounting firms. That speaks a lot,” he says. Mitchell did not give St Vincent’s as a reference, which Young says is not uncommon, because many people don’t want their current employer to know they are looking for another job.

According to Dr Russell Smith, three factors have to exist to enable fraud to take place – motivated offenders, suitable targets and the absence of adequate constraints or guardians. Due to lax internal procedures, Mitchell was given both passwords needed to operate electronic transfers from Canteen’s accounts. The amounts were below the radar of its external auditors – Arthur Andersen, which itself collapsed in 2002 as a result of the Enron scandal in the USA.

CanTeen only employs 50 people nationally, but it now prides itself on its risk management skills. “We have put a broom right through the financial checks and balances and now have good risk management practices in place,” says Young. It has three subcommittees responsible for risk in the areas of finance and governance, people and performance, and ethics and young people.

“Always try to check a reference from the last employer, even if it is after they have started working for you,” advises Young.

Building the business case

The cost of doing a background check has to be weighed against the risks of hiring someone who will financially damage your business, ruin your company’s reputation, or kill patients – whatever your business is.

Halabut at HBOSA says that he would have to employ two people full time to do the background checks that he outsources. “It is both cost effective and efficient in terms of time and money. It also reduces risk to the organisation and our customers. You have to look at the cost of a loss of reputation in the market versus the cost of preventing problems before they happen.”