EmployeeScreenIQ Blog

I’m always looking for ways to incorporate math into the rationale for a strong background screening program. This quote from a recent article about employee theft caught my eye, as it’s a sentiment we’ve echoed for years.

“A $100,000 loss to a $3 million company is more damaging than a $100,000 loss to a billion-dollar organization,” Mr. Karpp said.

Sounds like an endorsement of background checks, right?

Nope.

It’s from an article discussing companies that buy “crime insurance.” A product I’m not familiar with but one I’m sure has fat profit margins which we could calculate with a spreadsheet and a few free hours. But not everyone is sold on it…

Lee McGriff, principal of McGriff-Williams Insurance, an independent insurance agency in Gainesville, Fla., said he has found that many small and midsize business owners are reluctant to buy crime coverage “because they trust their employees explicitly. But my experience has been that when this comes to roost, it’s usually the most trusted employee who is the culprit.”

Click here to read the full story.

http://www.crainscleveland.com/apps/pbcs.dll/article?AID=/20111020/FREE/111019838

We too run into same resistance mentioned in the article when companies think “that couldn’t happen here.” Oddly, the article didn’t even mention background checks which I like to think lower the probability of getting ripped off, incurring the emotional and financial costs, the marketplace embarrassment, the press coverage, and the real expense of the $10,000 deductible cited.

But it’s the price, and not really the product, that strikes me the most. A $100 million dollar company is cited as an example, so let’s look at the numbers.

A $10,000 deductible and a $3,000-$4,000 annual premium get $1,000,000 worth of coverage. If there’s a claim in year 5, that company has already spent nearly $20,000-$30,000. Even if there isn’t a claim, they’ve already paid several thousand dollars for that premium year after year after year.

But a technology company for instance, might spend $15,000 (cost estimated through conventional industry sales per employee ratios) screening their ENTIRE workforce.

Even if you still bought coverage, you save money because there’s a lower chance you pay that $10,000 deductible. You’ve done a better job managing risk. Then add the benefits of doing things better, lower turnover, making more money, etc. because you have a stronger team competing in the marketplace.

Our clients? They already know EmployeeScreenIQ provides them with “crime insurance.”

They’re called background checks.

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Lieutenant Bob Hansen of the Medford Police Department in Oregon has some advice for employers: “It will cost a little to hire a background check, but it’s well worth it.”  This after a bookkeeper at Mellelo Coffee Roasters was arrested on charges of first-degree aggravated theft and five counts of first-degree theft for embezzling more than $40,000 for the company’s coffers.

When the Medford police did a little digging, they found a pattern of theft that began in 2008 including theft of cash and doctoring books to hide losses.

No need for me to get on my soapbox on this.  We all know the moral of this story. However if you know me, brevity is not my forte, so I thought I would share a personal story.

My grandfather and uncle owned real estate development company in the 70′s and 80′s and their most trusted employee was in fact, their bookkeeper.  For the sake of protecting the guilty, we’ll call this person “Mary”.  Mary was like family.  They trusted her with everything and compensated her well.  Sometime in the late 80′s they either noticed unaccounted expenses or had some type of financial audit.

You can imagine their surprise when they found out that Mary had stolen tens of thousands of dollars over the years.  And remember, that kind of money was no chump change back then (nor is it now).  Now, of course the concept of a background check wouldn’t catch on with your average employer until the 90′s, so I can’t really fault them for not performing proper due diligence before hiring her.  However, this did teach me an important lesson which is that any one can steal from you.  We’ve seen it with trusted employees, consultants and even other family members.  Now, that background checks are the norm, it’s important to use them, whether you are hiring a friend, or a friend of a friend or a complete stranger.

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A Cincinnati city employee now stands accused of embezzling over $750,000 from the city’s employees union.  And like many similar situations before this and many that will occur after, the chain of events was entirely preventable.  The city failed to conduct an employment background check on Diana Frey which would have revealed a 1983 conviction for theft and numerous convictions for writing bad checks from between 1988 and 1990.

We’ve become so immune to these stories to the point that I rarely blog on them anymore.  However, in light of the EEOC’s recent hearing on the fairness of criminal background checks, I just can’t ignore this.

First, shame on the city of Cincinnati for failing to protect their employees.  Now, for the EEOC.  If it were up some of their commissioners, those employers smart enough to conduct due diligence on potential employees would not be able to consider this information.  Why?  Because these events occurred as far back as 28 years ago, they believe that such records cannot adequately predict future behavior.  Well, they sure would have helped here.  Anyone care to disagree?

In Diana Frey Case, Everybody Dropped the Ball

Diana Frey’s alleged embezzlement of more than $750,000 from the Cincinnati city employees union she created is a story of the failure of effective oversight at every stage for nearly two decades.

Despite clear warning signs, agencies and individuals inside and outside City Hall responsible for overseeing Frey or her union repeatedly failed to take steps that could have averted the alleged wrongdoing or at least exposed it years earlier – potentially saving hundreds of thousands of dollars.

Those failures, stretching from before she began her city career to her indictment, include oversight breakdowns in which:

A criminal record and a falsified job application did nothing to slow Frey’s movement through a succession of city jobs in the 1990s.

• Read documents related to Frey

The U.S. Department of Labor, which has responsibility for protecting union assets, began looking closely at CODE only after the union’s treasurer tipped it off early this year.

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A former NASDAQ employee, Donald Johnson recently pleaded guilty to defrauding investors of over $750,000.  In this day and age, that amount is child’s play compared to some of the high profile fraud cases we’ve seen over the last couple years, but that’s really here nor there.  The thing that has left one Forbes blogger scratching her head is that this crime was totally avoidable.

All NASDAQ had to do was to conduct a thorough background check and they would have known that Johnson’s past would have provided a clear snapshot of what his future tenure with the company might hold.

According to Joelle Scott, “Nasdaq hired Johnson in 1989.  Three years prior, the Virginia Board of Nursing commenced an investigation into Johnson.  He had been working at Fairfax Hospital and, as a result of the investigation, according to the records from this department, Johnson admitted he had not only consumed Schedule II drugs while on duty as a nurse but also falsified hospital records in order to steal these drugs from the hospital.  Johnson was discharged from the U.S. Army Reserves where he was a captain and served as a nurse.”

Surely, a Professional License Verification with the Virginia Board of Nursing would have revealed information that would have raised red flags about Johnson.

NASDAQ claims to have conducted a background check on Johnson at the time of his hire, to which Scott reserves comments which should be shared over and over again with the myriad politicians and government agencies who seek to limit or ban the use of these vitally important employment screening practices.

“As we have explained to clients (both potential and existing) for over 20 years, comprehensive background checks are designed to uncover this sort of information to protect investors, board members, corporations and others.  Contacting licensing departments and appropriate regulatory bodies is an essential component of background checks.  This includes not only identifying any sanctions or disciplinary actions filed by the major regulatory agencies (SEC, FINRA, etc.) but also independently reaching out to government bodies that oversee the professions in which an individual has been involved from OSHA to the Departments of Nursing. These agencies provide critical information about an individual.

Johnson is one of many.  We have seen numerous people lie about degrees received from Ivy League schools and certifications received (yes, people still lie about this stuff!) and, like Johnson, people who voluntarily do not disclose their troubled pasts hoping no one will check.”

Click here for more information about what employers in the financial services industry should consider when screening potential candidates.

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Wanted to give a special shout out to Lisa Dorhauer who is accused of stealing $46,000 from a charitable organization that provides social services for children.  You win this week’s award for the most despicable human being.  Here’s your reward.

Unfortunately, the organization she stole from could have done a better job conducting a background check as she had two theft convictions on her record from before she was hired.

Woman Accused of Stealing from Charity Had Criminal Record

A Williamson County woman accused of stealing $46,000 from a local charity had two theft convictions before she was hired, but the nonprofit didn’t look at her criminal record until after she was believed to be stealing.

Lisa Dorhauer, 55 , was arrested by Williamson County sheriff’s deputies Monday. She faces a felony theft charge and is accused of stealing while working as an administrative assistant for Lutheran Social Services of the South, which provides services for children, seniors and disaster victims. She is accused of embezzling money by submitting phony expense reports over a two-year period.

Dorhauer could not be reached for comment. She was released from jail Monday on a $15,000 bond.

“I think this is an isolated incident of one person who stole from the agency,” spokesman Scott Carroll said. “The agency still does a lot of good work. We provide services to a lot of people who need it.”

Court documents show that Dorhauer has two thefts on her record. But the information escaped the attention of Lutheran Social Services employees, even though they had records in their possession.

Carroll said the nonprofit ran a background check on Dorhauer when she was hired in 2007. It was done through the Texas Department of Family and Protective Services , which flags candidates considered to be a threat to children.

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Last week we started to discuss the EEOC’s official position on employment background checks and how it affects employers.  We listed three areas of focus that we wanted to dissect in further detail (see below).  Today, we’ll focus on the criminal background check. And I soon began to realize that this specific area of focus would need to be broken into separate segments in order to avoid an Illiad-like post.  That said, let’s just address the EEOC concerns, who is using criminal background checks and how they are using them.

• Are organizations misusing criminal background checks to make hiring decisions?
• Are organizations misusing credit reports to make hiring decisions?
• Where do we agree/disagree with the EEOC?

The EEOC is concerned that using criminal records in the hiring process creates a disparate impact on minorities since they are arrested and convicted with much greater frequency than others.  This might be true, but does it outweigh an employers right to know in order to make an informed hiring decision?

In a study conducted by EmployeeScreenIQ earlier this year, we found that 92% of employers indicated that they conduct employment background checks.  Of those organizations:

• 90% of them check for criminal records at the county level
• 84% do so through a national database and
• 35% search for criminal records by submitting fingerprints to their state and, or the FBI
• Nearly all of those who used them indicated that this practice was a high priority in the hiring process

However, we should have followed up and asked how influential specific types of criminal record were when making a hiring decision.

Thankfully, the folks at SHRM did just that (see below).  Their study released earlier this year echoed the usage numbers above.  However, they also found the following information in regards to adverse hiring decisions based on criminal records:

• 97% said that the the severity of the criminal record was somewhat to very influential
• 95% are influenced by the number of convictions
• 93% consider the relevancy to the position the candidate was applying for
• 95% are influenced by the length of time since the criminal activity
• 81% considered the age of the person at the time the crime took place

These statistics are important because they show that employers are taking responsible steps to ensure they make responsible hiring decisions when it comes to criminal records. An area of concern though is that 26% of those polled said they were somewhat influenced by arrest records that did not result in a conviction and 5% were to heavily influenced by the same.

Here’s where I imagine the EEOC is going to be particularly concerned.  In most states, employers can consider arrests that took place over the last 7 years. And certainly employers will be concerned about arrests with pending cases.  However, this gray area is where employers can get into trouble.  Employers have to walk a fine line here in determining if a not guilty finding or dismissal should be used in the hiring decision.

That issue aside, you cannot argue that a criminal background check is an important factor in the hiring process.  It is one that is widely used and further, widely expected to be used.  In many cases employers are mandated by their state or regulatory requirements to conduct these checks. And employers who choose not to conduct these searches open themselves to significant liability and loss.

In subsequent posts, we’ll discuss how employers can/should make their decisions when they identify a criminal record and some tools in the marketplace that are designed to make this decisions consistently.

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“Hi, I have access to Disney’s (DIS) quarterly earnings report before its release on 5/3/10.  I am willing to share this information for a fee that we can determine later.”

That was the email message sent to various Wall Street traders from the boyfriend of a Disney employee who was the assistant to the head of corporate communications.  Instead of pursuing the offer many of these traders reported the information to the SEC.  A sting was set up, the gruesome twosome were offered $20,000 for the information and bam! they were arrested.  According to the Wall Street Journal, the employee was in it for the shoes.

I am certain that Disney employs stringent employment screening requirements including a comprehensive criminal background check.  And it isn’t being reported that the employee had any prior records.  This story just underscores the need for employers to be vigilant in their screening efforts.

Disney Drama As Stock Plot Is Foiled- The Wall Street Journal

Federal authorities alleged Wednesday that a Walt Disney Co. executive assistant and her boyfriend engaged in a ham-handed plot to sell Wall Street traders inside information, first offered in a chirpy missive sent to dozens of investment companies.

“Hi, I have access to Disney’s (DIS) quarterly earnings report before its release on 05/03/10,” the March 5 letter began. “I am willing to share this information for a fee that we can determine later.”

The alleged plan went awry. Instead of taking the bait, “multiple hedge funds reported the illicit scheme,” the Securities and Exchange Commission said in a press release.

In a pair of complaints filed Wednesday, federal authorities said the letter and subsequent emails were sent by Yonni Sebbag, whose girlfriend Bonnie Hoxie was an assistant to Disney’s head of corporate communications.

Disney said in a statement Wednesday that it “has been fully cooperating with this investigation.” Ms. Hoxie was at work as recently as Tuesday, according to people at the company.

A federal judge ordered Mr. Sebbag held as a potential flight risk and released Ms. Hoxie on a $50,000 bond Wednesday. Neither responded to the charges in a bail hearing Wednesday.

The March 5 form letter was sent to 33 investment companies, according to a criminal complaint filed by the U.S. Attorney’s office in Manhattan federal court charging the two with conspiracy and wire fraud. Undercover agents from the Federal Bureau of Investigation began corresponding with Mr. Sebbag, who used the pseudonym “Jonathan Cyrus” in the email exchanges, according to the complaint.

As the earnings release approached, Mr. Sebbag, 29 years old, and Ms. Hoxie, 33, engaged in an awkward exchange of their own as they waited with growing frustration for the quarterly earnings data to materialize, according to transcripts in both complaints. The exchange at points took on the tone of any couple bickering over mundane issues like bill paying.

“Get things moving with all the powers you have,” Mr. Sebbag urged his girlfriend at one point.

“Thanks for the flattery,” Ms. Hoxie replied. “I wish you could come to work every day with me.”

On the day of the earnings release, Ms. Hoxie sent Mr. Sebbag an email stating “here is the bag that you are going to get for me,” the SEC said in a companion civil complaint filed in New York federal court. It said the email included a link to “a picture of an expensive Stella McCartney designer handbag available for $700 at Neiman Marcus.”

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A Georgia woman has been accused of stealing from residents of the nursing home that she worked at.  Coastal Manor Long Term Care Facility said they conducted a comprehensive background check on the woman.  Nursing homes are required to conduct background checks in many states and apparently the problem of abuse in nursing homes is so prevalent that it has its own blog, Illinois Nursing Home Abuse Blog. The fact that this blog exists at all should convince any nursing home that is not currently conducting background checks the need to start ASAP!

Woman accused of stealing at nursing home

 LUDOWICI  — An employee of Coastal Manor Long Term Care Facility was arrested Friday and has been charged with stealing from the nursing home and several of its residents.
According to Ludowici Police Department Investigator Sal Genualdi, Demetria Denise Williams was arrested after Elise Stafford, the home’s chief long-term care officer, reported the center had information showing an employee had been stealing.
After gathering information from Stafford, Genualdi went to Coastal Manor and arrested Williams, 28, a military spouse who lives on Governor’s Boulevard in Hinesville. �
Genualdi said Williams was then taken to the LPD, where she was charged with theft by deception, theft by taking and exploitation of the elderly.
Genualdi said Williams has been charged with stealing more than $4,000 and that he anticipates as many as 25 more theft warrants.
Genualdi alleged Williams stole from residents by taking money for their families, but not depositing it into appropriate accounts.
Stafford said Williams also stole from the facility by taking payment of services not provided to residents.
“The majority of the money that was stolen was from payment for services,” Stafford said. “There was a minimal amount taken from the residents.”
She said she has reported the alleged crimes to state regulators and has asked for an independent auditor to look at the incident.
Genualdi said the initial charges all related to thefts from individuals, not from the home, which operates under auspices of Liberty Regional Medical Center in Hinesville.
Stafford said job applicants go through criminal back ground checks and that nothing was found on Williams to have prevented her from being hired.
“Our goal is to provide good quality care for our residents, and to protect them from any type of abuse,” Stafford said.
Genualdi said a $5,000 bond was set for Williams, but as of Thursday, she was still in the Wayne County Jail.

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A Philidelphia law firm is feeling the burn after discovering a former employee is responsible for forging checks totaling more than $100,000 from the estates of the firm’s deceased clients.  Assuming that the legal recruiter who recommended the employee for employment had conducted a criminal background check, the firm hired her.  Little did they know that she was awaiting sentencing in New York for stealing $285,000 from her previous employer – also a law firm.

A partner in the law firm states in this news story that the recruiter obviously didn’t do their job since a criminal background check was not conducted on the employee.  Well, unless the law firm made that a requirement in their contract with the recruiter, they never should have assumed the vetting process was taking place.  I believe it is unfair of the firm to throw the recruiter to the wolves over this one when they themselves didn’t conduct their due diligence and make sure the recruiter was conducting the background check. 

It is incredibly important that businesses work with their recruiters and staffing agencies to iron out an employment screening process and determine which types of background check results are acceptable and which are not .  Making assumptions about such an important process can be a costly mistake.

Parelegal charged in 100G theft

By Stephanie Farr, Philadelphia Daily News – May 19, 2009

Kathy Foer-Morse didn’t fit in at High Swartz law firm in Norristown.

She showed up late, left early and couldn’t be located during some workdays, according to her employer.

After her termination, partners at the firm said that they discovered $100,937 couldn’t be located, either.

During a subsequent investigation, detectives learned that the former estate paralegal was awaiting sentencing in New York for stealing $285,000 from the last law firm where she worked, and that she had used the money she allegedly stole from High Swartz to pay restitution in the New York case, said Kevin Steele, Montgomery County first assistant district attorney.

“She clearly didn’t learn her lesson,” he said.

Moreover, rather than take from High Swartz’s accounts, Foer-Morse wrote checks to herself from deceased people’s estates and forged the executor’s signature, said Paul Bartle, managing partner of High Swartz.

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Fraud experts and security professionals are on to you! We know why you steal……we know how you do it.  The tricky part seems to be WHEN and exactly WHO is going to commit the fraud.  This is an excellent article from Human Resource Executive Online.  I was actually surprised to see it here rather than my favorite security publication Security Management. In it the author explores several ways an employee can (and will) steal from you when given the chance.  More importantly, there is a strong emphasis on background checks towards the end.  I don’t have to remind you, our economy is not too good.  Employees are in fear of losing their jobs and don’t know how they are going to put food on the table.  Mitigating your risk is more important now then it ever was.  One small incident can put you out of business.  One small incident that could have been easily prevented will be very embarrassing.  There are many ways to prevent fraud! One should always remember; Opportunity Only Knocks Once, But Temptation Leans On The Doorbell!

The Criminal in the Next Cubicle

The recession can put pressure on employees to steal, and employee theft and fraud typically increases in tough times. Tip lines, prudent procedures — and forced vacations — may be just the answer.

By Cyril Tuohy, Risk & Insurance®

The fraud starts off small, in the form of a micro loan, just a couple of hundred dollars perhaps, to be repaid a few weeks later, interest free. The intent, of course, is to reimburse the employer, in this case the unwitting “lender.”

But before long, the perpetrator is in too deep, and the temptation to steal yet more money is just too strong. And the employer finds itself with a criminal working inside one of its cubicles.

“They take just enough to help them though a financial crisis, and when the money is spent, they do it again, double dip, triple dip,” says Greg Bangs, vice president and crime manager with Chubb & Son, based in Warren, N.J.

Then criminals snap and “go big” as the scale of their fraud increases. In one recent case, a $4 million electronic-funds transfer was routed through four countries on three continents within 48 hours, he says.

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