White Collar Crimes: Where Background Checks Can and Can't Help

When organizations think about protecting themselves from crime, the focus isn't always as strongly on internal threats as it should be. However, white-collar crimes that defraud companies can cost hundreds of thousands or even millions of dollars in losses—not to mention the potential blow to the organization's reputation. Internal and external controls are necessary to minimize the potential for such crimes, but significant challenges are standing in the way of that goal.

Consider two recent examples of white-collar crime, one in Nevada and the other in Massachusetts. In Nevada, a charter school principal and two teachers worked together to defraud a state program to help educators purchase supplies for their classrooms. The rules of the program state that each teacher may make only one request, which must undergo review by the principal before going to the state for fulfillment. The teachers created dozens of fake accounts and submitted fraudulent requests, ultimately obtaining more than $150,000 in personal items under false pretenses.

In Massachusetts, an employee of a nonprofit serving the disabled implemented a fraud scheme that let him steal more than $360,000 before he was caught. By using fake vendors and charging costs to those vendors using company credit cards, he was able to embezzle the money directly into his personal accounts. He, too, faces extensive criminal penalties if convicted.

Both stories have a common thread: background checks would not have provided the school district or the nonprofit with enough information to prevent these crimes from occurring. Ongoing criminal monitoring, a critical element of post-hiring safety procedures, would also not have raised a red flag.

Vetting still matters to help organizations avoid hiring individuals who have previously committed fraud or may otherwise pose a greater risk. To supplement the initial safeguard background checks provide requires institutions to use good judgment and actively look for unusual activity. For example, the nonprofit may have avoided the loss of the funds with a more rigorous payment approval process. Ensuring that no individual can easily transfer money out of a business's coffers is a vital step.

Unfortunately, there is no guaranteed way to prevent white-collar crimes from occurring altogether. However, businesses can take concrete steps toward reducing the likelihood of it by removing opportunities for bad actors. Good governance procedures, including periodic audits and reviews, could contribute to unearthing troubling signs early. 

Background checks aren't a perfect tool, but they remain incredibly useful—and robust vetting procedures early in the hiring process can still screen out risky candidates. However, companies can't stop paying attention once a new hire walks through the front door. Ongoing monitoring, common sense, and correctly enforcing existing policies can all better protect your business. While white-collar crimes can be so financially devastating, the effort is worth the time.