Mitigating fraud risks with pre-employment screening

Written by
RMI Team (F)

In August 2014, Han Delong was a senior personal banker at United Overseas Bank (UOB) in Singapore. He left the organisation in December 2015, subsequently joining Oversea-Chinese Banking Corporation (OCBC) in March 2016 as a premier relationship manager.

Through his position at both banks, Han built and maintained close relationships with his clients, often selling them wealth and investment products.

In May 2021, Han was convicted of fraud amounting to almost S$2 million and sentenced to 7 years’ jail. He had been selling fictitious financial products by forging bank letters printed on a UOB letterhead, and building a mini Ponzi scheme to cover his tracks.

Understanding the business costs of fraud in Asia

In one of our previous articles, we talked about the key business risks that all leaders should plan for, regardless of company size, and one of them was fraud.

Fraud is a huge umbrella covering internal and external fraud, and ranges from theft, embezzlement and money laundering, to bribery, corruption and conflict of interest. In most legal definitions, fraud generally involves the use of deception or dishonesty to achieve a gain for yourself and/or cause a loss to another.

It’s important to remember that fraud does not always involve monetary transactions. Selling counterfeit goods, forging statements or documents, falsifying educational qualifications and stealing intellectual property all fall under fraud.

According to LexisNexis, the average cost of fraud in the Asia-Pacific region is 1.75 percent of revenues or US$160,000 monthly, with retail, e-commerce, and financial services firms tending to incur higher costs. Business costs incurred due to fraud include:

    • Fees and fines
    • Losses in transaction value
    • Replacement or redistribution of lost or stolen merchandise
    • Labour for investigations
    • External expense recovery

Why do people commit fraud?

The answer isn’t clear-cut, although the Association of Certified Fraud Examiners has identified that most cases involve pressure (or motivation), opportunity and rationalisation – what they refer to as the fraud triangle.

  • Pressure or motivation: Unsurprisingly, the most commonly cited motivator is greed, followed by financial problems such as gambling or debt. In Han’s case, it was found that he paid about S$12,000 to a car dealer and S$20,000 to lottery operator Singapore Pools.
  • Opportunity: Fraud is more likely to occur in companies where there is weak internal control or poor security. This minimises the risk (and fear) of exposure as there is little to no likelihood of detection. Han likely thought that he could continually cover his tracks with fresh funds – he used S$350,000 taken from some victims to pay back other victims.
  • Rationalisation: People tend to follow the rules because of morality, or because they are afraid of the consequences of getting caught. To push someone over the line to commit fraud, they need to rationalise to themselves that what they’re doing is necessary, harmless or justified.

Most times, having only one or two of the three conditions met is not enough to result in fraud – if pressure or motivation exists in the absence of opportunity, fraud is less likely to occur.

Preventing fraud means first addressing people risks

Mitigating fraud risk requires a multi-pronged approach, but with the root cause of most fraud cases being human in nature, businesses cannot afford to overlook the importance of addressing their people risks.

This makes pre-employment screenings and background checks key to combatting occupational fraud. Luckily, this is something that the central bank of the Philippines understands well. Bangko Sentral ng Pilipinas recently tightened its screening rules for current and prospective bank employees as a means to implement more rigorous protocols for the financial industry’s hiring processes.

The purpose of the new guidelines? To ensure that banks conduct proper due diligence on all applicants’ personal background and character, in order to identify potential conflicts of interest and susceptibility to collusion, fraud or other illegal activities.

Tailor your pre-employment screening to your business or industry needs

In risk management, prevention is always better than cure. Pre-employment background checks are a critical line of defence for mitigating fraud risks. Every business should include the following in their hiring process:

    • Identity verification
    • Reference checks
    • Educational qualifications verification
    • Employment history checks

And for higher-risk industries in the Asia-Pacific like retail, e-commerce and financial services, more advanced types of screening are also recommended, such as:

    • Criminal record checks
    • Financial health and history checks
    • Checks for addictions like alcohol or gambling
    • More thorough checks related to directorships, family connections, or known associations to avoid conflicts of interest
    • Behavioural or psychological assessments

Implementing proper background checks can help your business minimise the risk of falling victim to employee fraud. Which is why pre-employment screenings aren’t just great for strengthening your recruitment process, but should also be an integral part of your risk management strategy. Get in touch with us to learn more about mitigating fraud with pre-employment screenings today.