by Dave Mount, Westaff
Vermont is in the midst of an epidemic of white-collar crime. We’ve read recent headlines about people in positions of trust who been accused of crimes ranging from embezzlement to fraud — all involving large sums of money. A number of people have gone to jail already and others remain free on bail awaiting trial.
Nobody seems to be immune. Towns big and small have had embezzlements as have companies, both for-profit and not-for-profit.
I was discussing this problem one day with a friend who owns a small bakery. He is the chief baker and his wife keeps the books. They have limited their exposure to fraud to near zero and, as my friend put it, “Yes, we have the keys to the kingdom.” But that cannot happen in many businesses. I know that, as we grew our company, we became more and more exposed, and the needs for good internal controls became more and more important.
There is no sure way to prevent a fraud, but there are ways to minimize your exposure. The best ways are to start out with good reference checking and to have your accountant do a review of your internal controls over cash receipts and disbursements. Remember that the word “cash” is inclusive and really means all money, including checks. The frauds we have had in Vermont rarely involved actual cash but involved manipulation of bank accounts.
Reference checking is a frustrating activity. Ask any labor attorney about giving references, and you will generally be advised against doing it. Attorneys advise to only give dates of employment and, perhaps, salary and title. That’s it; say no more.
Even a good reference can be a problem, especially if you give a good one to some and only dates for others. Some attorneys advise giving nothing more than a letter as a reference, but that has pitfalls, too.
One time, my wife wrote a glowing letter of reference for a departing employee. Guess what? Two weeks after she left, we found that our employee had defrauded us out of hundreds of dollars by paying herself and billing customers for hours never worked.
This leaves employers with a big dichotomy regarding reference checking — give no information but ask others for everything. Frankly, that does not work well.
Checking personal references is also a mixed bag. Who would use a name as a personal reference if the reference would not be glowing?
One solution is a records check. They cost money, but not as much as an embezzlement might cost. Records checks can be performed in the potential employee’s county of residence or statewide or nationwide, each of which costs progressively more.
The records check will look at criminal records and also look at the county clerk for records of recorded debt or liens. A similar check can be done of a person’s driving record if that is relevant.
What are the danger signs in the records?
• Too much debt. This is a warning, not necessarily a danger. People with too much debt might have disruptions at the office, and worse, they might see the company coffers as an easy way out.
• Of course, prior convictions for fraud or any honesty crime — even misdemeanors such as shoplifting or bad checks.
So: The steps in hiring someone in a position of trust are as follows:
• Interview the person.
• When you have chosen, do a reference and background check. It’s a good idea to advise the person that you are doing it. Some companies require the potential employee to sign a form giving them permission to do this.
• Confront the person with any item in the reference and background checks that you are not comfortable with.
• Don’t be afraid to walk away and start the hiring process over. Often, when you are hiring, there is a strong number-two candidate. If this is the case, don’t send that person a rejection until you have fully vetted and hired the number-one choice. •
Dave Mount is the founder of Westaff in Burlington.