Thursday, January 15, 2009

To Hire a Thief: What Are Your Chances

It is an interesting thought to ponder. What are my chances of hiring a thief into my company? As a hiring manager or an HR professional, this has direct bearing on you.

To help answer this question, let us turn to PriceWaterhouseCoopers (PWC), the world's largest professional services company with global standing. Every two years, PWC conducts a Global Economic Crime Survey. The most recent survey (2007 which concluded well before the 2008 economic meltdown and stunning multi-billion dollar frauds) reports continued bad news.

Bad and Getting Worse
The 2007 survey reports that 43% of the 5,400 firms surveyed had suffered one or more significant economic crimes. As if that were not sufficiently bad news, the survey continues with an assessment that the severity of the average fraud (measured in economic terms) worsened by 40% in just two years ($1.7 million per incident in the 2005 survey and $2.4 million per incident in the 2007 survey).

The survey continues with the downbeat assessment by reporting that internal controls are insufficient to stem the tide of losses and that internal audit is increasingly less effective at detecting economic crime.

There just isn't any way to sugar-coat this kind of seriously bad news. The 2009 survey ought to hit new lows as it will include the shameful behavior of 2008 and the multi-billion dollar frauds that occurred last year.

What To Do
There are some specific recommendations to employ in order to more effectively combat fraud. In addition to having a robust internal audit and strong internal controls, PriceWaterhouseCoopers recommends creating a corporate culture of ethical behavior.

What it doesn't say is how a company goes about building such an ethical culture. At a previous employer (40,000 employees), we had a Sr. Vice President of Human Relations and a Vice President of Culture and Integration. At this company, the issue of building a unified culture around core principles of ethical behavior was so important that we invested heavily in the HR function in order to achieve that goal.

We began with the determination to hire people whose behavior and attitude reflected the culture that we wanted to build. Background screening (going back 7-10 years) was a significant part as were policies surrounding the abuse of drugs and alcohol (drug screen before hire and random testing thereafter). Employee theft was a one-strike policy (followed by vigorous prosecution). We revised not only our employment policies but also the reward and recognition systems to make sure that employees whose behavior contributed to the development of our targeted culture were recognized and rewarded while employees who made no such contribution, received no such reward or recognition. Going further, employees whose behavior was contrary to our targeted culture, they were recognized (privately) and strongly encouraged to align their behavior or look for an employer whose culture was a better fit.

It is a difficult task and one that is not quickly or easily achieved. Much will need to be invested: money, time, goodwill. There will be much resistance as it represents a change from the status quo. Still with the average cost of fraud ($2.4 million), the investment can pay off handsomely in the form of negative consequences never experienced.

Answering the Question
So, returning to our initial question, what are your chances of hiring a thief. Answer, worse than you might have imagined (as evidenced by PWC's 2007 survey). Fortunately, there are things you can do about it: build robust internal controls, conduct rigorous internal audits, and (importantly) develop a corporate culture of ethical behavior.

7 comments:

Sund@nce said...

So what specifically are my chances as a recruiter of hiring a thief?

Bill Wallace said...

Sund@ance, as a corporate recruiter, we see a lot of folks whose background checks raise the eyebrows. It is sad to say, for my clients (principally blue collar positions) the rate is about 35%.

Just over a third of the applicants don't move forward as result of a background check.

Bill Wallace said...

While it is unfortunate that so many are disqualified as a result of the background check, it is a great thing for our company to discover (beforehand) that the candidate has issues.

I would greatly prefer having to filter through a larger number of candidates than have to deal with the consequences of hiring someone who steals from the company.

Sund@ance said...

35% is a huge number! It is difficult enough to find applicants with the right set of skills. Having to dismiss a third of them is a deal killer. I just can't afford to cut off a third of my skilled applicants.

Bill Wallace said...

18 months ago, maybe. These days I get hundreds of applications for the few positions currently available. It is definitely an employers market right now.

It is actually quite helpful to have the background checks help narrow the field to the candidates who not only want the job, but my clients would want as a long-term employee.

RushTown said...

Thieves suck! It's blunt but true.

As a small business owner, I had one that almost trashed my company. The current economy was already squeezing our cash flow pretty hard but discovering that my bookeeper (and a subcontractor) had been working together to steal from us was just too painful.

I've learned a valuable (and expensive lesson). Trust, but verify when hiring.

Kevin Janos said...

It only takes one.

It only takes one sexual harassment lawsuit to make you want to ensure that you never have to endure another. It only takes one employee who kills or seriously injures another while on the job and under the influence to make you want to never have to go through that again.

Yes, it is a pain to go through the extra time and expense of the thorough background checks, drug testing, and integrity testing. The cost of these extra steps is easy to calculate and may not seem justified to someone who has not been down in the HR trenches long enough to understand the reasons why we consider it time and money well spent.

Those who have been there, know and understand. Those who have not yet had to endure one of these experiences yet may not fully "get it".
It only takes one.