Employee fraud is a situation most businesses don’t like to confront, let alone discuss. Fraud can pervasive and perpetrated in many forms, and it can be difficult to identify. When employees commit fraudulent acts, the effects on business can be highly damaging. Do the employer organizations see it coming? Most likely not. Do the firms take the appropriate steps and thoroughly investigate individuals before hiring or placing them in specific positions? If not, they probably should have. In point of fact, fraud is insidious and can have seriously debilitating consequences for businesses and communities. And in the current economic environment, fraudulent acts are even on the increase.

Fraud affects companies of every size in nearly all major market segments and industries every year (fig. 1). The median loss per incident to small businesses is $98,000 and can range into the millions for large businesses, according to the Association of Certified Fraud Examiners (ACFE). Ultimately, the collective integrity of a business depends on the individual honor of its employees. Organizations have a fiduciary and legal duty to their employees, customers, and public to know their workers’ backgrounds prior to making hiring decisions.

The risk of fraud can be managed with a properly designed fraud prevention program that is embraced companywide, including by top management. To create an antifraud environment, businesses must define policies and procedures that reinforce behavior to mitigate and prevent fraud.

One method for businesses to fight fraud is to use the services of a professional background-check firm for due-diligence before entering into an employment relationship. Background checks are similar to an insurance policy. Businesses that hire without knowing employees’ history can become victims of fraud and potentially suffer enormous damages. Background-check results can reveal factual discrepancies in the application process, and if any red flag information comes to light, companies have the opportunity to think twice before making employment offers.

If economic conditions continue to decline, incidents of fraud will likely escalate. As companies lay off workers and the unemployment rate climbs, desperation can set in because people can’t find jobs. And such anxieties can often lead to fraudulent acts and misrepresentations on job resumes in hopes of securing employment. According to the Society of Human Resource Management (SHRM), 53 percent of all job applications contain false information. And not long ago, Forbes.com released a list of common resume falsehoods (fig. 2).

Dishonest job hunters also take a gamble that short-staffed and overworked human resource departments will not fully verify information in job applications. To combat the problem, there are various automated solutions to assist companies with the hiring process. Companies operating with a reduced work force must often create a faster, more streamlined hiring process. To that end, technology and data platforms are available to remove the front-end burden from the company conducting the hiring. Applications that allow candidates to enter their own information can be of high value to an employer. Not only does it save time, it also tracks, validates and processes applicant information and provides background-check results, helping to reduce the time-consuming process of gathering data by the employer.

According to the Association of Certified Fraud Examiners, the most common background checks conducted are employment history, criminal checks and credit checks. But that may not be enough. Businesses also need to perform a Social Security number verification, along with professional license and education verifications and other types of checks based on the company’s market profile and needs. Background checks should be position-specific, as a wide range of false credentials and inflated resumes can be submitted by workers seeking employment.

Unfortunately, many businesses deem fraud and pilferage to be a cost of doing business today. While some cases are uncovered and reported, most are undetected until it’s too late or even concealed. That’s because some companies want to avoid the negative publicity of being a victim of workplace fraud. It can cause embarrassment for the company, its employees and partners. Fear of client loss and creditors is also a major concern, so the effects of employee fraud are often unreported.

According to the ACFE, U.S. organizations lose approximately 7 percent of their revenue each year to various types of fraud schemes — which equates to a staggering $994 billion annually. And most fraudsters are first-time offenders often working in accounting departments or upper management. But as fraud increases, enacting basic policies and procedures can help businessowners protect themselves and their firms from fraud. One of the most critical measures is to perform meticulous and comprehensive background checks on all new employees. And to guard against deception, prospective employers should rely less on the resume as a completely truthful document.

William F. Hauswirth is president of ISO’s IntelliCorp Records unit. IntelliCorp (www.intellicorp.net) helps businesses and organizations reduce exposure to fraud, workplace violence, and negligent-hiring lawsuits.