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Fraud Prevention 101: Question Employee Credentials

Whether you're looking to acquire new talent or an entire company, take these steps to ensure you've received honest histories about new colleagues.
Ken Springer, CFO.com | US
April 23, 2012

The Internet has created a false comfort for executives looking for new employees and business partners. A myth has cropped up that people don't — or can't — lie about their credentials, since the web offers a mother lode of access to data about their histories, both good and bad. But such an erroneous assumption can cause trouble.

Pre-employment verifications and due diligence will never go the way of the 8-track tape. Despite the immense amount of information available through Internet gateways, employees of all salaries and ranks continue to test the waters of integrity and embellish (or lie) about their accomplishments to get jobs. So do the employees at some small companies looking to be acquired or partner up with a larger business.

In a recent survey of CFOs of private-equity and venture-capital firms that we conducted, almost 40% said they had encountered some form of fraud during their tenure. Some of that fraud occurred during the early stages of a new professional or business relationship in the form of misleading or fake information.

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So how do CFOs mitigate the risk that they'll get duped by the résumés of the individuals running the company that is about to be acquired? First, always be skeptical and ask pointed questions of candidates before you agree to forge a relationship. And consider taking the following steps to confirm, at the very least, their basic declarations.

 

These are just a few of the most prevalent forms of résumé or biography fraud. When looking at a company, either for an acquisition or investment purposes, or for employment reasons, it is important to understand the business's mission statement and its levels of controls. Gathering intelligence on the company and assessing the firm's checks and balances should include answering all of the following questions:

  1. Is there a compliance officer?
  2. Does it have an independent whistle-blower hotline
  3. Do any blogs or news articles make controversial or derogatory allegations? If so, can the accusations be corroborated?
  4. Do regulators (including the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Occupational Safety and Health Administration, and the Environmental Protection Agency) have any files on the company?
  5. If the company has international offices, have its employees received proper training about compliance with the Foreign Corrupt Practices Act, which prohibits bribery of foreign government officials?
  6. Has the company been involved in any controversial lawsuits, such as repeated discrimination allegations or shareholder litigation?

 

Another way to learn about a company's environment and culture is by reaching out to its former employees. Be sure to ask whether any officers of the company left their positions due to a systemic problem, such as fraud or mismanagement.

CFOs face the challenge of overseeing the integrity of their firm's investments and acquisitions, whether they are in the form of companies or new employees. They have to secure their company's vulnerabilities and consider all of the potential loopholes to protect it from fraud. Having a strict policy of vetting employees and management teams up front will minimize fraud down the road.


Ken Springer is president and founder of Corporate Resolutions Inc., a business-investigations firm that conducts background checks and business intelligence, and offers a suite of other specialized investigative services. Springer is a certified fraud examiner, a former special agent of the FBI, and co-author of Digging for Disclosure: Tactics for Protecting Your Firm's Assets from Swindlers, Scammers and Imposters (FT Press, 2011).




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