Fraud Prevention 101: Question Employee Credentials

By Ken Springer
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 get acquired or partner up with a larger business.

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.

  • Start with education. Employers should confirm everything in this section of a candidate’s résumé, including attendance at executive education and continuing education programs, as well as undergraduate and graduate degrees. They should do the same for the key people who work at a target company. Employers can check with National Student Clearinghouse, a third party, which most schools use to handle verifications. Others still do these verifications in-house, for which employers can contact the registrar’s office to obtain the information.
  • Research professional licenses. Certified public accountant and chartered financial analyst are two of the most common professional accreditations that job candidates and even people who have solid jobs exaggerate. For CPAs, every state maintains its own department that regulates and oversees CPA licensing, and the records are publicly available. We have found many instances where an individual’s license had lapsed or was never issued despite a corporate biography that stated otherwise. For CFAs, the CFA Institute maintains publicly available records of all certified analysts with this designation.
  • Verify employment records. People exaggerate not only their tenure at a given company but also their positions. Confirming exact dates of employment is just as necessary as reaching out to an individual’s former business associates to get a sense of his or her demeanor and reputation. Often these former colleagues will either praise or condemn your candidate, providing invaluable information.

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.