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  • Steve Dawson

Two Simple Checks: Background and Reference

Fraudsters are creative. I’ve seen a variety of frauds committed in a variety of ways, and I am still seeing new things every day. Often, I see the most loss in companies that have poor internal controls and little accountability. Sometimes it’s because they grew too fast to prepare. Sometimes it’s because they never understood the dangers and liabilities they were vulnerable to. Sometimes it’s because they placed trust in the wrong people or the wrong circumstance.


But so often there are simple, easy steps that can prevent damage.


Two of the most unused tools for building a reliable, trustworthy workforce are Background Checks and Reference Checks. People just don’t do them. They don’t run background checks, and they don’t call references. It may seem like a bit of work during the hiring process, but it could spare you much more time and money in the life of your company.

Unbelievable Backgrounds


I worked a case years ago where a woman committed fictitious lending fraud. She was a loan officer at a credit union, and over several years stole money using a fictitious lending scheme. Because it was a credit union, insured federally, it was a federal crime. In 36 years of fraud investigations, I have seen many convictions, but not many sentencings involving jail time. I have seen maybe 10 people actually serve prison time for their fraud. Most end up with plea bargains involving reparations, probation, etc. But because of the federal nature of the crime, she went to federal prison for three years.


Although a tough sentence, all in all this was not an unusual fraud. Money stolen, fraudster convicted, sentence carried out.



But a few years later, I got a call from the U.S. Secret Service. They were handling some overflow from the FBI and had some questions about this old case. I was confused as it was open and shut, and the convicted fraudster had served her time and been released.


The Secret Service wanted to get my testimony to establish “habituality of the accused.” The accused. ?? This woman, a federally convicted felon, had been released from prison, gotten a new job AS A LOAN OFFICER at a bank, and committed the exact same fraud.


If this scenario doesn’t sound insane enough, soak in a few more details. This was in a small town, fewer than 9,000 people. The two financial institutions she defrauded were literally ACROSS THE STREET from one another. She didn’t move states or even cities. I would love to see her application for that job. The resume would have to be nothing but lies. There is no way she was honest about a 3-year gap in employment history for her prison stay. I wonder if she even disclosed her previous employment with the company she defrauded. I wish I could have been in the interview. She most likely didn’t confess that she would fail a background check if one were run. She probably completed a congenial interview and appeared to be a “good fit” for this new company.


No matter how friendly she was or how impressive her resume appeared to be, a simple background check would have shown her potential employers a felon convicted for fraud in the exact job position she was applying for. Instead they found themselves suffering loss and losing resources in an investigation.


Understand, this anecdote is not an isolated incident. As part of our investigations, we run criminal history searches of suspects. During one of these searches, we discovered the Executive Director of the organization who was suspected of fraud already had 4 prior convictions of financial fraud, 2 of which resulted in incarceration at the state penitentiary. The company was shocked as they had never run any kind of background check. In hindsight, I’m sure they would have preferred to know her criminal background before hiring her to handle their finances in any capacity.


Revealing References


References are another place where people can falsely represent themselves. This tip doesn’t even necessarily have to protect you from fraud (though it might), but just from having unreliable employees. Never assume that references you receive are legitimate. Call and find out. You might be surprised in what you learn.


One time I received a call seeking my endorsement for a previous employee of mine. I was a bit shocked to hear the name, as I had never given my permission to be used as a reference by this person. It was NOT someone I would recommend.


But being experienced in the working world, I knew if I were outright honest about this person, I could be held accountable for what I said about him if he felt I was unfair or untruthful. Maybe he was hoping I would just be vague about my opinions of him? I truly doubt he expected his references to even be contacted. So here is how the conversation went. I verified that the person worked for me for the disclosed amount of time. I confirmed the duties performed by this person.


When asked, “Would you hire this person again?” I remained silent. The caller, becoming uncomfortable, asked me, “Did you hear the question?”


“Yes, I heard the question,” I replied.


“So, would you hire this person again if you had the opportunity?” Again, I remained silent.


I don’t actually know the result of this reference check. I hope they understood my silent message. I hope they chose a more reliable candidate, at least one who received the permission and confidence of his references.

The hiring process can be tedious. If you post a job opening and receive thirty-some-odd applications, obviously do not perform background checks and reference checks on all of them. That gets expensive and time consuming. But absolutely perform them for your finalists. You could discover something that helps you wisely avoid great pain and frustration in the future. Follow through with these simple steps to confirm the authenticity of your interviewees and future employees.


Empowering small businesses to develop strong Anti-Fraud Programs is our mission. We provide consultations to design, evaluate, and improve your anti-fraud program. You can also get a step-by-step guide to design a program that can be tailored for your specific needs by purchasing Steve Dawson’s book, Internal Control/Anti-Fraud Program Design for the Small Business.


If you think there may already be fraudulent activity in your company, contact us today through our website.