As Published in Business 2 Business, September 2007

Big Fat Liars

Managing Fictional Resumes

By Ira S Wolfe

Employers these days must be asking themselves, "What's Next?" when it comes to finding qualified and reliable employees. Little white lies and lapses of memory on resumes and during interviews are thinning out an already depleted supply of skilled workers.

Just like pouring salt into an open wound, more red flags are popping up in background checks than ever before. The annual Hit Ratio Report and Industry Analysis, published by Kroll, the risk consulting company, recently revealed another annual round of increases in criminal record hits, discrepancies in past employment verifications (from 36.5 to 49.4 percent) and education verifications (from 14.1 percent to 21.6 percent).

Some of the hardest "hit" industries are:

• Nearly 50% of candidates in Construction, Automotive, and Retail had positive DMV (Department of Motor Vehicle) information hits.
• Over 50% of candidates in Business Services, Real Estate, and Automotive had hits on their credit history.
• Over 50% of candidates in Transportation, Construction, and Non-Profits had hits on their employment verification.
• And over one-third of non-profit and construction candidates had hits on education verification.

More Dirty Little Secrets

Let’s say you successfully recruit a candidate whose resume, experience and cultural fit are exactly what you are looking for.  You verify your top applicant’s credentials and no flags.  Past employers verify dates of employment. You complete a criminal history check and credit check and your candidate appears squeaky clean.  Time to take a deep sigh of relief and celebrate, right?

Not so fast, amigos. An even more serious threat may not being showing up at all, regardless of how thorough and comprehensive the background search.

According to the Association of Certified Fraud Examiner’s “2006 Report to the Nation,” only 8 percent of fraud perpetrators had prior convictions for fraud.   You might interpret this statistic to mean that for the other 92 percent, this was a first time occurrence when they got their hand caught in the cookie jar. 

Unfortunately, you’d be wrong.

Same old story told for the first time

Adding to an employer’s growing wall of challenges, there is a serious disconnect in reporting the fraudulent activity of an employee. Employers are often reluctant to report the fraud.  The reasons vary but near the top of every list is embarrassment and negative publicity – what will customers and vendors think?  Other employers just want to put the incident behind them and move on.  Still others feel badly for the “honest” employee who was caught embezzling for let’s say – buying high-cost, uninsured medicines for a sick child or spouse.  The employee may be discharged but the crime is never reported in order to help this employee get back on his/her feet.  Whatever the reason, many perpetrators are not reported, only to move from employer to employer without incident.  When they are finally caught, many of these perpetrators are dismissed as first-time offenders – only to be discovered by another employer for the “first” time over and over again.

“Why Won’t Anybody Talk?”

Dr. Carol Johnson asks this question in an article she authored in the November/December 2006 Fraud Magazine.  Dr. Johnson suggests the threat of lawsuits for defamation, invasion of privacy, or retaliation also might deter employers from telling the truth about former employers.  Other employers hope to avoid severance costs, unemployment compensation, and other costs or negative publicity. This tight-lipped reference policy only perpetuates and worsens the problem for employers attempting to verify credentials and integrity.

But zipped-lips aren’t a valid excuse for not performing or providing reference checks. Negligent hiring and negligent referrals are real risks for both the former and prospective employer.  Threats of lawsuits and embarrassment are not good defenses for employers who fail to communicate or attempt to acquire employee information that might later prove harmful to the business, its customers, or its employees. 

Lancaster attorneys Michael Moore and Christina Hauser from the firm Russell, Krafft, and Gruber offer the following advice for reference checking on their PA Employment Law Blog (www.paemploymentlawblog.com):

What is an Employer's obligation to obtain background information on prospective and existing employees?

No state imposes a duty on an employer to provide a reference on behalf of an employee. However, if a business chooses to provide a reference, it must do so uniformly and may be liable to the employee, other businesses or third parties if the reference is negligent. Negligent references are either inaccurate, materially incomplete, or both.

• Employers are under a common law duty to exercise reasonable care in selecting, supervising and controlling employees.
• The duty includes reasonable investigation into the prospective employee's work experience, background, character and qualifications.
• Look at the relationship between your customers and employees - is the potential for harm foreseeable? What kind of work and contact with the public do your employees have?
• Look at relationships between employees - has any conduct or history made the potential for harm foreseeable?

What should you do if you are asked to provide a reference for someone who is terminated for misconduct?  

An employer has a right not to speak at all.  But he has a legal obligation if he speaks to tell the whole truth and nothing but the truth. Omitting information is considered misrepresentation just as is providing a favorable or neutral reference when the former employer believes the individual could potentially cause harm to others.  The consensus advice points to either telling it like it is or providing no reference at all. Don't ever give a false reference; particularly, if the misconduct leading to termination involved violent behavior. 

If you decide to give a reference, here are some additional tips:

• Set a policy for giving reference and follow it.
• All references should be given by Human Resources based on uniform and factually accurate information. 
• Allowing supervisors to give references is dangerous.
• Consider "verifying" facts provided by the prospective employer, rather than providing the information yourself.
• Never give references that contradict facts you have provided in other forums, like worker's compensation or unemployment compensation.
• Consider providing or verifying the following summary information in a reference like:
• Dates of Employment
• Job Title
• Job Duties
• Final Compensation Level
• If you adopt the summary information policy, tell prospective employers that it is your company's policy to provide only this information. Don't leave them with the impression that you are hiding something.
• Avoid answering certain questions like "would you rehire?" and "reason for leaving?", unless you are prepared to explain both.

Hot Tip: Fraud Hotline

Anonymous tips are the most common means by which occupational fraud is detected, more effective than internal audits, external audits, or internal controls. According to the Association of Certified Fraud Examiner’s 2006 Report to the Nation, the majority of tips — nearly two out of three — were received from employees.  Other sources of tips are suppliers, vendors and customers.

Patricia Herr recommends a fraud hotline to many of her clients.  Herr is a Certified Fraud Examiner and the Audit Partner at Trout, Ebersole & Groff (TEG), LLP, a Lancaster County CPA firm.  Her firm hosts a fraud hotline for a number of organizations, encouraging an organization's employees to anonymously report unethical behavior.

The Hole Truth and All but The Truth?

One industry particularly hit hard by high rates of background failures is law enforcement.  To give you a sense of the problem facing employers, the Las Vegas Police Department has to fill 400 available jobs this year. The background failure rate is almost 70%.  Candidates have concealed a range of criminal activities, from prostitution to fraud and drug use.  To fill all the jobs, the recruiters estimate they need to attract over 600 applicants a month!

Las Vegas is not alone. In Santa Fe, recruiters are attempting to fill 15 vacancies this year but more than 60% of applicants are routinely found to be unfit after background investigations.  . In Phoenix, more than one-third of the police recruits are failing polygraph examinations.  In Orlando, about half are not surviving pre-polygraph interviews. One candidate was recently dismissed after listing two fraudulent college degrees that the candidate purchased online.

The FBI just announced it had to lower its standard because too many candidates were being rejected. The FBI is now accepting recruits who smoked marijuana in the past but have not smoked it recently. 

Fraud in a Nutshell

Occupational fraud and abuse imposes enormous costs on organizations. The median loss caused by the occupational frauds in this study was $159,000. Nearly one-quarter of the cases caused at least $1 million in losses and nine cases caused losses of $1 billion or more. 

Participants in the 2006 Report to the Nation study estimate U.S. organizations lose 5% of their annual revenues to fraud. Applied to the estimated 2006 United States Gross Domestic Product, this 5% figure would translate to approximately $652 billion in fraud losses. In 2004, participants estimated 6% of revenue was lost to fraud.

Occupational fraud schemes can be very difficult to detect. The median length of the schemes in our study was 18 months from the time the fraud began until the time it was detected.

Source: Association of Certified Fraud Examiners, 2006 Report to the Nation.

“You can’t judge a book by its cover,” says Ginni Barley, sales and marketing representative at the Credit Bureau of Lancaster. “People are so savvy these days, they know how to get past you.”

A big mistake companies make is that they hire, then screen, according to Barley. Organizations need to screen before they hire.  In fact, they need to screen before a job offer is extended.

Recommendations, referrals and prior contact with an individual are no excuse for foregoing the background check.  Barley shared a story about a delivery person who called on a company for three years.  Everyone loved this person and had nothing but good things to say about him. When an opening occurred in their company, they offered him a job. He accepted.  A few weeks later the company ran a background check, only to reveal a history of felony convictions including jail time.

Because we live in a mobile society, criminal records often have lots of holes in him, especially if the candidate is not honest enough to reveal all their previous addresses.  That is another reason for organizations to run credit checks.  Whether the credit reports are clean or not, they often provide clues to previous residences. This opens the door to more thorough criminal checks.