Reina Cheng, Vice President—Hong Kong & ASEAN, First Advantage shares HR advice on re-screening to reduce the risk of financial loss and reputational damage from wrong hires.
Who better to speak to on HR teething problems than a dentist? With a BDS in Dentistry, an MSc in Human Resource Management and an INSEAD EMBA; Reina Cheng, Vice President—Hong Kong & ASEAN, First Advantage is uniquely placed to help HR. Cheng, who previously worked in-house on talent acquisition for an international bank, before several years in senior HR consulting roles, shares HR advice to reduce teething problems when rolling out employee screening, and more importantly, re-screening programmes.
HR fraud up 17%, billions lost annually
Fraud and economic crime have reached record highs, causing substantial reputational and financial loss to organisations globally. PwC’s 2020 Global Economic Crime and Fraud Survey revealed the real impact of such fraudulent activities— which is costing organisations an estimated US$42 billion every year. The most recent KPMG Global Banking Fraud Survey echoed this with over 60% of organisations surveyed reporting they had experienced an increase in fraud volumes. Yet, many organisations are still missing key opportunities to detect and avoid. Cybercrime, Bribery and Corruption, Asset misappropriation and accounting/financial statement fraud are now impacting every industry. In particular, the frequency of Human Resources fraud is up 17% on last year.
These figures highlight the financial cost of wrong hires, but the impact of their actions can go far beyond the money. The reputational damage that companies can suffer from negative PR and the widespread effects that just one ‘bad apple’ can cause when their negative actions or disgruntlement go viral on social media.
HR tips for reducing fraud risks
1. Screen,re-screen,re-screen
While there are organisations that still do not conduct any background checks on employees, even those that do tend to focus these exclusively on new hires. While this is undoubtedly a prudent move to assist hiring heads in identifying any red flags during the interview process, it is not the be- all-and-end-all of fraud risk within an organisation. Internally, circumstances, talent mentality, job functions and risk exposure all change rapidly over time, and HR cannot afford to be complacent, simply because a staff member was screened when they first joined the organisation.
Cheng highlighted, “The importance of re-screening as a process of on-going background checks should not be underestimated. Background checks are frequently performed when new hires join organisations, but much less so when staff transfer in from operations in different countries or move into new roles within the organisation, which may be far more sensitive and business-critical roles.”
2. Consider internal & external threats
Organisations can fall prey to fraud from any source. Perpetrators could be internal, external, or in many instances arise as a result of collusion between the two. Cheng noted, “It is essential to perform regular updates in terms of internal talent checks. Organisations often take great measures to avoid economic crimes from outside the organisation, but all too often fail to recognise the potential threats that lie within the organisation.”
Senior management and business partners remain a risk, and fraud committed by management is trending upward. The PwC Survey indicates that currently, they are the source of 26% of all commercial fraud, with nearly half of such incidences resulting in losses of US$100 million or more. The KPMG Survey also highlighted that insider fraud could be as great, if not greater, than external fraud, given the ability of employees to exploit weaknesses in controls to target an organisation’s most vulnerable and valuable assets.
The importance of re-screening as a process of on-going background checks should never be underestimated.
3. Timing & buy-in critical
HR may be understandably concerned about requesting background checks from talent who may have been with the organisation for many years—as it may be seen as HR lacking trust in the team. It is therefore essential to carefully time the checks as part of a broader compliance audit, and clearly communicate to teams the reason behind the checks, so it is understood they are being conducted for the security of the entire organisation. Cheng highlighted, “With so many more people working from home right now and new hiring significantly reduced, incumbents are more concerned about their job security right now. Consequently, talent is expecting increased visibility from HR right now, and likely to be more open to the idea of re- screening and background checks at this time.”
An HR Magazine Survey, published in June 2020, indicates that two-thirds of organisations in Hong Kong had implemented hiring freezes for the rest of the year. So, while the external market remains cautious, this provides an ideal opportunity for HR to focus their attention to their existing internal teams and conduct talent audits to help minimise potential fraud risks. Cheng noted that there are still some employers concerned that re-screening may be difficult to implement either because it has not been done before or because they have not yet developed a process to deal with any re-screens that do highlight potential risks. She advised, “Implementing re-screening programmes is always a little more challenging when done retrospectively. But I would reassure HR that teething problems can generally be resolved quickly and easily with some minor process tweaks. They do not represent any significant long-term barriers to roll-out.” She added, “It’s also vital that HR get support from business partners and C-level sponsors for re-screening. In terms of timing, the re-screening can be rolled out in phases; HR should prioritise talent populations with the highest perceived risk. For example, priority screen those in direct contact with money and those in business-sensitive roles. Ideally, this process should be repeated once every 2 – 3 years to mitigate any organisational and role changes during this period. Its always good to have a clause included in the contract or employee handbook which states a periodic re-screening exercise will be done on a three- year basis on risk-sensitive roles."
4. Consider the bigger reputational picture
The employment landscape is changing more quickly than ever before, and civil litigation is on the increase. Major frauds perpetrated by insiders can be far more damaging than externally perpetrated crimes, not merely because of higher financial losses, but because they can also result in civil or criminal actions against the company and those involved, reputational harm, management distraction and loss of business. Regulators are demanding much more robust organisational structures to reduce risk, particularly in the banking sector—with some now even requesting companies provide evidence to demonstrate the efficacy of their compliance programmes. Cheng said, “It’s important that HR ensures any re-screening programmes are conducted in line with the values of the organisation. To maintain and nurture employer-employee trust, HR must ensure that people at all levels in the organisation understand that the actions they take on a personal level may affect the reputation of the entire organisation that they work for.”
Cheng cited an example of a banker at an international bank in Singapore who was exceptionally rude to a security guard in their building. Someone videotaped the unpleasant incident, which later went viral on social media. It was subsequently discovered that the assailant was in a very senior role at the bank and the press picked up on this, which led to a suite of knock-on allegations about whether his credentials were authentic. She advised, “To minimise the chances of cases like this negatively impacting your organisation’s reputation, it’s essential to conduct thorough social media checks to try and ascertain any red flags such as previous incidences of anger management issues. Employees’ personal behaviour, to a certain extent, always affects the organisation that they work for.”
5. Demonstrating ROI
Despite now being a good time in terms of talent mindset, organisational liquidity and cash flow are at a low ebb right now. Cheng said, “Most organisations are in a cost-maintenance and cost-saving mode right now, so all money that HR is looking at spending needs to show a clear return on investment. HR is concerned about improving engagement of their staff— particularly with everyone working from home. So, now more than ever, HR cannot take their foot off the gas in terms of risk management and corporate security, especially with internal staff who have been working with the company for a while. Re-screening will pay dividends in the long term as companies with a dedicated fraud programme can significantly reduce costs.” The PwC Survey reports such organisations being able to spend 42% less on response and 17% less on remediation costs, compared to those without fraud programmes in place. Moreover, the KPMG Survey highlighted the importance of fraud prevention activities, with over half of organisations surveyed only recouping less than 25% of their total fraud losses.
Organisations often take great measures to avoid economic crimes from outside the organisation, but all too often fail to recognise the potential threats that lie within the organisation.
Top Five HR Screening Trends
- Role-Based screening: optimising screening standards based on the future positions of candidates. C-suite is completing full due diligence checks to protect shareholder value. Other levels of balance risk and cost based on candidates’ access to sensitive information.
- Consolidation: bringing country-specific screening programmes under a single global umbrella. This establishes a unified global standard and increases compliance, purchasing power and risk management. Requires screening partner with a global reach that is also nimble at the local level.
- Rescreening & monitoring: mitigating exposure to continuous risk by creating either annual re-screening programmes or, to prevent any lag time, enrolling employees in continuous monitoring.
- Next-Gen screening: Utilising honesty and integrity checks such as social media and CV comparisons to get the full picture of candidates. Increasing interest in checks such as facial recognition and platforms, are now expected to be mobile-enabled and locally optimised.
- Candidate pool shift: recognising future candidate pools look less like previous ones, and more candidates are entering as contractors or gig-economy roles. Automation is reducing the volume of candidates screened, and those that remain are often more sensitive and require more thorough vetting combined with best-in-class candidate experiences.
Source: First Advantage 2020 Trends Report
For more information on background screening visit www.fadv.com.hk
Paul Arkwright
Publisher
