How Employers Must Deal with the Source of the Greatest Threat to Their Business Survival

“Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.” – Warren Buffet

Fastest growing crime in the USA

Just as much as the success of your business depends on its personnel, so does its failures. According to the FBI, corporate theft is the fastest growing crime in the United States. It’s bigger than identity theft, cyber fraud, credit card theft and internet scams. [1]

Per the Association of Certified Fraud Examiners (ACFE): [2]

  • Employee theft accounts for $50 billion in annual losses for businesses.
  • One of three bankruptcies are caused by employee theft.
  • Employee theft events occur for an average of two years before companies discover what’s happening.
  • Although around 25% of thefts involve damages in excess of $1 million, a significant portion of shrinkage losses are in the $1,000 to $500,000 range.

The ACFE also found that about 87% of those who committed fraud against their employers had never been previously charged with that sort of offense.

This means that background and criminal checks would be worthless during a recruitment process. [3]

How do you pick honest, loyal and dedicated people, knowing that 78% of resumes are misleading [4] and 81% lie during the recruitment interview (according to recent research by the University of Massachusetts)? [5]

The “right people” re-defined

If you are working hard to keep your business expanding, you need to be aware that all your energy, effort and dedication to make things go right could suddenly go down the drain. It would take only one of your employees or executives to believe that they are “entitled” to take away your money, assets or intellectual property.

If you hire the right people, things go smoothly; but with today’s societal declining sense of honesty, we need to re-define “right people.” Here is one definition I have applied for almost three decades in talent acquisition: The right people are those who not only fit the job and the culture of your organization ; they also live by the fundamental principle that honesty is key to success and happiness – theirs and yours.

A classic embezzlement horror story

Steve is a young entrepreneur who took over a car dealership as general manager, reporting to the owners of the company. Within just a few months on the job, he was asked by his board of directors to hire Scott, as operations manager to deal with the company finances and bank relations. Scott had the best resume and obviously could demonstrate impressive hard skills.

A bit suspicious during an informal interview, Steve decided to use the Hirebox testing platform in order to investigate the applicant’s true intentions. The pre-hire assessment results came out very clearly in providing the following warning: “Do not hire without a thorough investigation of past performance, reference checks and a criminal/background check – the applicant demonstrating very strong indicators of hidden intentions.”

Steve did his best to gather information per the HireBox recommendations, but was never able to talk to previous employers and could not find “anything wrong” with a standard background check. Pushed by the owners of the company, he reluctantly hired the applicant. Six months later, Scott disappeared with over $150,000 of cash stolen from company accounts.

Small businesses a primary target

According to the Hiscox Embezzlement Watchlist, nearly 72% of U.S. federal actions involving employee theft involve small businesses – organizations with fewer than 500 employees. Within that group, four of every five victim organizations had fewer than 100 employees, and more than half had fewer than 25 employees. [6]

 

Per Fraud Magazine, estimated median losses for organizations with fewer than 100 employees that experienced a fraud were $147,000. The report indicated that small organizations are the most common victims of fraud incidents at 31.8% — the highest rate of any business size category. Comparatively, organizations with 100 to 999 employees had a fraud incident frequency of 19.5%.

As reported in the ACFE’s 2012 Report to the Nations, the five most common fraud schemes for organizations with fewer than 100 employees in the ACFE report were: billing fraud, corruption, check tampering, skimming and expense reimbursement fraud. Corruption schemes deal with crimes such as bribery, illegal gratuities and kickback arrangements.

The largest number of perpetrators in the entire study, 41.5%, had been with the organization between one and five years, most of them had a college degree and worked in the accounting area. [7]

The major sources of inventory shrinkage in small retail businesses are: [8]

  • Employee theft – 42.7%
  • Shoplifting – 35.6%
  • Administrative – 15.4%
  • Vendor fraud – 3.7%
  • Other – 3.9%

Why employers fail to detect dishonest applicants

The first step to improving something is analyzing what might be causing the problem. I have come to realize that the honesty challenge cannot be resolved through the blind application of security measures. The hiring process offers the most effective preventive measures; it should be geared toward (a) getting the best people on board while (b) evaluating integrity as the primary qualification – no matter what position is to be filled.

 

Below are the most obvious reasons why detecting honesty is such a challenging, yet vital endeavor in the hiring process. It is the combination of two or more mistakes which lead to failure; recruiters tend to get “blinded” by what they like or do not like leading them to neglect objective red flags throughout the hiring process:

  • Resume scanning: Make sure to search for date gaps and other red flags. Preferably, compare a resume with the concerned applicant’s job application form, to detect discrepancies.
  • Avoid gut feeling: Most recruiters tend to make a hiring decision based on their first impression. Most applicants know about the first impression rule and will work hard at it.
  • Hard skills vs soft skills: It is proven that only 11% of hire failures are due to a lack of soft skills – 89% of them being traced to a lack of soft ones. Hiring for soft skills increases your success potential by over 100%. Honesty is the most important soft skill to detect.
  • Beware of personality: Most recruiters do not realize that the personality they are analyzing is a temporary picture of the candidate – which may be totally different at the end of the trial period. The etymology of the word “personality” comes from old Latin “personae” – which literally means “mask.” Many candidates wear the best mask they can, when being interviewed.
  • Subjectivity – the greatest enemy: You need to formalize your recruitment process in order to maximize objectivity in your evaluation. Hiring by opinions not only opens the door to mistakes or bad judgments, it can also lead to trouble with the EEOC.
  • Do not rush: Too many small businesses hire in a rush because a position absolutely needs to be filled. The sense of urgency leads to negligence of observation and ability to evaluate objectively. The big mistake here is to consider that a job is better filled with “someone,” rather than being empty. When it comes to evaluating honesty, rush is a strong liability.
  • The limit of background checks: Background checks should be a great protection against hiring dishonest people. But according to research about 87% of inside crime perpetrators show no record in background or criminal checks. Do not rely exclusively on background checks results.
 

What HR managers can do

The integrity challenge can be solved first by engaging in a series of preventive measures throughout the hiring process. You can’t expect everyone to be piously honest in a society where 70% of college students confess to being willing to lie on their resume in order to land the job they want. [9]

However, you must face the fact that a small percentage of people (whether executives, employees or blue-collar workers) do have bad intentions and will seek to take advantage of your natural trust about others, your complacency or your lack of attention. At the end of the day, it all rests on your shoulders to close the door to criminals, crooks or ill-intended applicants. Here are some practical tips on how to minimize the odds of suffering from future staff dishonesty:

  • Honesty should be the first and most important soft skill to look for, and need to be checked at every step of the hiring process.
  • A standard recruitment procedure needs to be created in order to minimize subjectivity in the evaluation process. Lack of formalization leads to subjectivity – the first enemy to precision.
  • A specific integrity checklist should be used to evaluate objective criteria of evaluation for each selected candidate, throughout the hiring process.
  • Ensure that integrity is part of your organization’s core values. Establish firm policy about business ethics and honesty at work. Create a “zero-tolerance” environment for dishonesty – same level of importance as drug intolerance.

Conclusion

Evaluating for honesty should not be taken lightly, as you are playing with the future of people. The majority of applicants are good and (relatively) honest. Your preventive security measures are actually undertaken for a small minority of them – those who are seriously more liable to take advantage of your good intentions, your belief that there are no ill-intended people around, or some complacency in believing that it could never happen to you.

 

Potentially damaging lack of integrity is rarely reported in a criminal or background check; it is the level or severity of dishonesty that you must be able and willing to evaluate, in order to avoid bringing the wrong type of people on board… and having to suffer costly consequences.

Ask for a free demo of the Hirebox pre-hire assessments, which can detect ill-intended, unreliable or dishonest applicants – while recognizing the humble jewels and the real stars.

Sources:

[1] https://www.crimeinamerica.net/crime-rates-united-states

[2] http://www.acfe.com/about-the-acfe.aspx

[3] https://www.creditdonkey.com/employee-theft-statistics.html

[4] https://www.statisticbrain.com/resume-falsification-statistics/

[5] https://hbr.org/daily-stat/2013/06/vast-majority-of-applicants-li.html

[6] https://www.securitymagazine.com/articles/86474-small-businesses-get-hit-hardest-by-employee-theft

[7] http://www.fraud-magazine.com/article.aspx?id=4294976289

[8] https://www.statisticbrain.com/employee-theft-statistics

[9] https://www.statisticbrain.com/resume-falsification-statistics/

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