An Effective Hiring Practice
The First Line of Defense Against Fraud
Many small and medium-size business owners/managers invest little up-front in their hiring process. Most feel that it is money that cannot be recovered. In fact, this “up-front” expenditure will provide savings many times over, and it can make a real difference in the business thriving, performing in a mediocre fashion, and/or failing. Effective background investigation inquiries help avoid liability, guard against hiring unqualified individuals, aid in performing risk assessments relative to liabilities of candidates and also aid in providing a determination as to eligibility for promotions.
Since 1997 with the promulgation of amendments to the Fair-Credit Reporting Act, there is a more defined process for gathering data relative to the hiring process. Any background investigation performed by a reputable private detective and/or human resource personnel should be approved in advance by a qualified business attorney.
Purpose and Scope of a Background Inquiry
Small and medium-size business owners/managers can most effectively fight fraud against their businesses by hiring persons who are qualified and demonstrate fitness for the positions.
The following should be included in the investigation:
Each candidate must provide the business with legally obtainable information relevant to employment.
Information must be accurate to the limit that the applicant can make it so. Any material omissions in education, employment or required personnel history must be fully explained.
NOTE: Earlier this year, the Detroit News reported that almost 17% of executives misrepresent their credentials on résumés.
Nationally, estimates of résumé/employment application fraud run as high as 22-25%.
Deliberate misstatements or material omissions by candidates in required written applications and history forms or in oral interviews should be considered disqualifying.
Direct sources of information should be included on the employment application. This information would include the applicant’s name, nicknames, birth date, citizenship, previous employment, address, previous addresses, education and references.
If required, a résumé can be used to demonstrate communication skills, a source for present and previous employment, professional skill level, professional interest, social interest, family involvement, and it can be an indicator of self-esteem to the degree that it is utilized as a marketing tool.
Through an interview, gaps in employment can be determined and questions about the candidate’s education resolved (for instance, is the school listed a “correspondence school,” does “self-employed” mean unemployed, etc.) An interview demonstrates the candidate’s oral communication skills from a thought orientation and organization. Through proper questioning (and again, this format should be reviewed and approved by a qualified business attorney), the candidate’s professional philosophy, goals, strengths and weaknesses may be revealed. Further, personal appearance can be evaluated.
In addition to the foregoing, there are many indirect sources of information, which can be independently checked. These include military records, education records, driving records, credit records (in compliance with the Fair Credit Reporting Act amendments), court records, and other financial records which can give an insight into disposable income and profile a candidate’s financial discipline. These would include real estate records and UCC filings.
A thorough background investigation will equip the employer in making a merit judgment concerning the qualifications, reputation and personality disposition of an employment candidate. An employer will be able to foresee potential problems with the candidate and consider them in the totality of the candidate=s qualifications. The employer will not be surprised later by some past indiscretion, which may result in a cause of action against the company.
Tips on Avoiding Fraudulent Insurance Claims Against Businesses
Recently, on national public radio (PBS) during the course of a featured program discussing business fraud, it was mentioned that over one hundred billion dollars is lost annually to fraudulent insurance claims. We all know who has to pay that bill!
There are a number of self-help techniques that small and medium-size business owners/managers can employ:
First, take advantage of any educational programs, web site information, self-help bulletins, etc. available through your general liability carrier and also your workers’ disability compensation carrier. For instance, the Michigan Accident Fund publishes all kinds of useful materials to promote fraud awareness at businesses. In fact, they have recently published a new Supervisor’s Fraud Guide, which can be viewed online at www.accidentfund.com
Recognize that many workers think that filing a fraudulent or exaggerated workers’ compensation claim is “not really a crime.” A recent study by the Insurance Research Council found that nearly 10% of all U.S. adults think that it is “okay” for someone injured at home to claim their injury is work-related in order to collect workers’ compensation benefits. Even worse, the Council found that 17% of U.S. adults say it is okay to cooperate with lawyers, doctors or chiropractors to file false or exaggerated workers’ compensation claims to get money from insurers. As a result, false and exaggerated claims are making workers’ compensation fraud the fastest growing segment of insurance fraud.
Further, recognize that it is not just insurance companies that get burned! The National Insurance Crime Bureau (NICB) estimates that fraud currently costs companies many billions of dollars every year in hidden expenses including: production delays, retraining costs and equipment replacement costs.
Business owners and managers need to do a better job of investigating workers’ compensation claims to protect their companies from these associated expenses. Another motivator for stepping up investigations is evidence suggesting that when employees know of a coworker’s successful fraudulent claim, they are more likely to make such claims themselves creating a vicious circle of escalating workers’ compensation costs for businesses.
How to Protect Your Company:
The NICB recommends that each business owner/manager have a clear understanding of how the business is being defrauded. For instance, the most common examples of claimant fraud are injuries not suffered on the job and faked (exaggerated or prolonged injuries). Typically the claim includes soft tissue trauma such as headaches, whiplash and muscle strains. Claimant fraud also takes the form of multiple injuries and claims filed just before or after an individual is terminated from a job.
Dishonest claimants are tempted by the prospect of receiving up to 66% of their salary tax free and no work. The NICB strongly recommends that where fraud is suspected, video evidence of a worker’s activity be obtained by reputable private detectives.
Business owners/managers must also be aware of the growing number of medical bills via legal and medical professionals who purposely over bill or bill for services not rendered.
Finally, organized criminal fraud activity is becoming increasingly common. These are groups of workers who fake accidents and act as witnesses for one another, especially after a layoff.
How To Spot The Fraud
Here are some clues/indicators:
The claimant is disgruntled or about to be fired or laid off.
The claimant is a seasonal worker, and his/her term is about to end.
The claimant takes more time off than the injury seems to warrant.
The claimant is having financial difficulties.
The accident occurs late Friday afternoon or when the worker comes back on Monday.
There are no witnesses to the accident.
The accident occurs just before a strike or near the end of a probationary period.
The medical diagnosis is inconsistent with treatment.
The claimant is nomadic with a history of short-term employment.
The accident occurred in an area where the claimant would not normally be.
Develop A Plan To Combat Fraud
Here are some suggestions from the NICB and also from my own experience over the last 20 years:
Conduct an effective background investigation of new candidates.
Clearly communicate your company's management policies, standard operating procedures and workers’ compensation policies in writing.
Inform workers that directly or indirectly, the money for injuries ultimately comes from the business, and as such, they affect the bottom line. Honest employees will be more likely to blow the whistle on scheming coworkers if this is brought to their attention. This should be part of an overall corporate commitment to excellence policy which brings workers on board with a whatever-it-takes attitude as it relates to customer service and all other aspects of the corporate process. Most importantly, this standard of excellence must be set and demonstrated by the owners and the top management. It should also include a zero tolerance policy towards fraud.
Educate supervisors on workers’ compensation issues.
Display fraud awareness and prevention posters.
Immediately and effectively address employees’ complaints and concerns about working conditions.
Use a fraud prevention employee exit interview.
If you suspect fraud in a claim, immediately contact your insurer and seek out all evidence of suspected fraud, witnesses and other information necessary to investigate the claim.
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