Hiring Mistakes Increase Embezzlement Risks

August 18, 2016  •   Uncategorized  •   1 comment

Did you know that hiring mistakes increase embezzlement risks? Naturally, no reputable employer wants to hire anyone who is dishonest. However, it happens all the time. For example, common sense teaches that when hiring any new employee, the more you know the less risk you face. It also teaches that when it comes to hiring for positions of trust, such as finance and other cash- and asset-sensitive jobs, you need to know even more about the prospective candidate.

For over four decades, I have dealt with hundreds of recruiters charged with the process of filling open positions. The expertise among these recruiters varied greatly. Many were well trained and competent; many were not. Some were well versed in how to conduct critical background checks and there were others who placed minimal importance in making a thorough—sometimes time consuming—background check on an apparently impressive candidate with a glowing résumé. A few interviewers admitted they believed that if they allowed this individual to walk out of the office without making a job offer another company would promptly snap the applicant up. For several of those with that mind-set, the watchword became: Bypass the company’s normal recruiting procedures and hire this candidate on the spot; ignore the background check.

Failing to conduct thorough background checks can have devastating consequences. Here are two examples:

“Your Honor,” the attorney pleaded as they stood before the judge, “He’s a good man who did a bad thing. He’s extremely remorseful.” Well, as for being a “good man,” judge for yourself. What the defense attorney failed to mention as his client, an accounting executive at a California aerospace company, entered a guilty plea to embezzling over $10 million during his thirteen years of employment, was [Mistake # 1] he was hired by his employer based solely on information contained in a fake resume; no background check was made.

According to investigators, shortly after being hired by his employer, [name omitted] had co-conspirators create shell companies for which he would approve fraudulent invoices for nonexistent work, always keeping charges under $100,000 to avoid suspicion.  For more than a decade, this defendant lived a life of extravagance that included two luxury Los Angeles-area homes, luxury automobiles, female escorts, five-star hotels, pricy restaurants, and expensive pieces of art and jewelry. [Mistake # 2] Since no time was taken to search the Internet for negative information, [name omitted] easily sailed through the hiring process and enjoyed his life of luxury for over a decade. That is until a suspicious coworker “Googled” [name omitted] and discovered he had served approximately three years in prison in an embezzlement case involving another employer.

Another case example:

An Orange County man [name omitted] pleaded guilty to embezzling approximately $1.4 million from his employer, a crime he committed when he was awaiting sentencing in an unrelated embezzlement case involving another former employer. Court records revealed that while serving as controller of his most recent employer for one year, [name omitted] embezzled money by forging the signatures of the company officers on 92 unauthorized checks that were made out to him and several associates. The total value of these checks was $1.38 million. During that very same time-period, [name omitted] was free on bond and awaiting sentencing after pleading guilty to embezzling approximately $2.65 million from another previous employer where he had been employed as the accounting manager. In court, [name omitted] also admitted that while working between the above two employers, he also embezzled approximately $70,000 from a third company.

In court, the U.S. Attorney said “[name omitted] crimes caused significant damage to three different employers, one of which was forced to lay off 20 employees and is struggling to keep its doors open.”

Lessons Learned:

Common sense teaches us that when hiring any new employee, the more you know, the less risk you have. It also teaches that when it comes to hiring for positions of trust, such as finance and other cash and asset-sensitive jobs, you need to know more about candidates than for those who apply for less-sensitive jobs. Past behavior is the best predictor of future behavior. In the simplest of terms, the best strategy for preventing embezzlement and internal fraud in any type of organization commences at the point of hire.

To my mind, there are essentially three types of applicants:

Type 1:  Decent and honest individuals

Type 2:  Borderline or casual thieves

Type 3:  Hard-core thieves.

I will explain more in my next blog post.